Snyder defends tax on pensions, downplays $1.8B tax cut to businesses
Lansing – — Gov. Rick Snyder downplayed Friday the significance of the $1.8 billion tax cut he delivered to businesses in 2011 and defended his decision to levy the income tax on some pensions.
During a statewide public radio call-in show, the Republican incumbent tried to counter the talking points of his Democratic opponent, Mark Schauer, that his corporate tax overhaul was a giveaway to big businesses.
“Big business did not get a tax benefit from the tax changes we made,” Snyder said on the Michigan Public Radio Network’s “Michigan Calling” show. “That didn’t happen at all.”
Snyder said the 2011 elimination of the Michigan Business Tax and creation of a 6 percent corporate income tax ended a system in which state government doled out generous tax credits to large corporations. He said eliminating the MBT largely benefited “small and medium-sized” businesses by a ending a tax scheme that took into account sales and profits.
“That’s the tax reform that really happened. It wasn’t about big business,” said Snyder, a former business executive. “I wiped out their tax credits. They have a higher tax rate than individuals. That wasn’t a big win.”
The East Lansing-based Anderson Economic Group said in a report last month that Snyder’s tax law changes have boosted Michigan’s place in a ranking of states with business-friendly tax policies from No. 32 in 2011 to No. 28 this year.
“The fact is businesses in this state are paying $1.8 billion in less taxes now,” Schauer spokesman Zack Pohl said Friday. “I think it’s absurd that this governor would suggest that his tax cut didn’t benefit big business.”
About 95,000 small to medium-size companies organized as an limited liability corporation, S corporation or partnership are no longer subject to any state tax on business income, said Tricia Kinley, senior director of tax and regulatory policy at the Michigan Chamber of Commerce.
Owners of those types of companies used to get taxed on their business income and gross reciepts through the MBT and its predecessor and then get hit with an individual income tax bill for their salary or profits, Kinley said.
“A lot of the Democrats’ claim that this was a big tax cut for big corporations is simply misleading and inaccurate,” Kinley said.
Mitch Bean, former head of the nonpartisan House Fiscal Agency, said it’s an “oversimplification” for Snyder to claim large companies didn’t benefit from the 2011 tax changes. Bean noted some LLCs can be as large as the Auburn Hills-based automaker Chrysler Group LLC.
“I don’t believe that,” said Bean, co-owner of Great Lakes Economic Consulting in Eaton Rapids. “That’s not true.”
Pension tax defended
Schauer and fellow Democrats have made Snyder’s changes to the way pensions are taxed a major issue in the election campaign, calling it a tax on seniors — a characterization the governor challenged Friday during the live radio show.
“That’s a misstatement when it says seniors,” Snyder told radio show host Rick Pluta. “It was really about essentially removing the exclusion on pension income.”
In 2011, Snyder first proposed ending all income tax exemptions on pension income. Previously, only retirees with large pensions from private employers were subject to the income tax.
The Republican-controlled Legislature scaled back Snyder’s initial plans, creating a three-tier system that continued to exempt public pensions from the income tax for 480,000 taxpayers born before 1946.
Retirees over age 68 with private pensions are exempt from income tax for the first $48,302 for single filers and $96,605 for joint filers.
The governor noted a new exemption of up to $40,000 was carved into the tax code for all forms of income for senior citizens.
“Now it’s fair between people who had retirement income and people who had working income,” Snyder said.
The second tier for residents born between 1946 and 1952 exempts the first $20,000 for single filers and $40,000 for married couples who file their taxes jointly. That exemption applied to 230,000 tax returns in 2011, according to a House Fiscal Agency memo.
Under the changes Snyder signed into law, all pension income is subject to the 4.25 percent income tax for residents born after 1952, affecting approximately 150,000 taxpayers.
“It’s still one of the top 10 most generous schemes in the country,” Snyder said of Michigan’s tax on retirement income.
Under Snyder’s tax law changes, some lower-income seniors saw their tax bills increase because the governor and Legislature made the homestead property tax credit less generous.
A retired couple born after 1952 with $48,000 in pension income and a reduced homestead property tax credit saw their income tax bill rise by $3,130 after the 2011 tax changes, according to the House Fiscal Agency.
Snyder reiterated his longstanding argument that making more pension income subject to the income tax was a matter of fairness to other workers.
“If you say retirement income isn’t taxed, you’re shifting your taxes to your kids to say ‘we want you to carry us,’ and that’s not a fair answer,” Snyder said.
Later in the day, Snyder was greeted by about 25 protesters at an event in Madison Heights carrying signs that read “Stop Senior Tax.” Snyder was attending a Blue Cross Blue Shield of Michigan announcement of an expanding program aimed at fighting childhood obesity.
Lonnie Scott, executive director of the liberal political group Progress Michigan, said Snyder is trying to “whitewash” his record of putting “the well-being of corporations and his CEO cohorts above the interests of Michigan families.”
“Whether he’ll admit it or not, Gov. Snyder cut education funding and increased taxes on families and seniors so he could pay for a massive corporate tax giveaway,” Scott said Friday in a statement.
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Detroit News Staff Writer Charles E. Ramirez contributed.