A news service for the people of Michigan from the Mackinac Center for Public Policy

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Retiree Becoming Face Of 'Pension Tax' Collecting Generously

Former teacher and union head likely receiving over $51K in pension payments alone

Gov. Rick Snyder has defended the tax changes as a fairness issue.

A retired school teacher with 30-plus years of service says he has to choose between food or medicine due to a law repealing tax exemptions for some pensions.

But James Pearson, a 66-year-old retired teacher from Milford High School with 33 years of service, is likely collecting enough compensation from a pension and Social Security alone to put him above the average state income.

He is also eligible for both Medicare and the state’s retiree health insurance, which should pay for most of the costs for medicine.

Pearson has become the face of protesters complaining about the pension tax, being quoted by the Lansing State Journal, Mlive and the Detroit Free Press.

The Huron Valley School District confirmed that Pearson had 33 years of experience when he retired from the district in 2010.

A teacher with 33 years of experience and a master’s degree would have earned a minimum of $72,546 in 2010, according to the Huron Valley School District’s teachers contract.

A teacher with a $72,546 salary with 33 years of experience would have an annual pension of $35,910. If that teacher retired in 2010 (as newspaper reports said Pearson did) and could have qualified for an early retirement incentive, that would increase that annual pension to $38,304.

The average Social Security annual benefit as of 2013 is $15,528.

That means a retired teacher in Pearson’s situation is likely receiving an annual income of at least $51,000 just based on pension and the average Social Security income. That doesn’t include any other savings that teacher could have accumulated or if that teacher had a spouse who also had a pension or was still working.

The Lansing State Journal reported that Pearson was now “clipping coupons” due to Gov. Rick Snyder’s tax on pensions.

"Many of us living on a fixed income now have to choose between putting food on the table and paying for our prescriptions because of the Republican retirement tax," Pearson told MLive.

The federal government estimates that only about 3 percent of private sector workers are eligible for a pension. Michigan retirees with 401(k)-type accounts pay taxes on those earnings.

Pearson did not respond to a request for comment sent to his personal email.

He also is union president of the West Oakland County Education Association-Retired, a union for school retirees that is an affiliate of the Michigan Education Association.

Ari Adler, spokesman for Michigan House Republicans, said the pension tax reform treats all Michigan income the same, but does provide exemptions for seniors. Social Security income is 100 percent exempt.

“The pension reform affects younger retirees, like the government worker who retires on a taxpayer funded pension at age 55,” Adler said. “All retirees who use 401(k) plans have always had to count their savings as income. This is about treating all retirees fairly. Under the old law, two seniors of the same age with the same overall income paid different amounts of taxes. A senior with a pension didn’t have to pay income taxes, but a senior working or retired on a 401(k) was forced to pay the tax. It wasn’t fair. Pensioners born before 1946 are grandfathered in and do not have to pay income tax on their pensions. Pensioners born after 1946 can qualify for a $20,000 (single) or $40,000 (married) exemption on income.”

Others from across the political spectrum have commented on the perceived lack of fairness in the old tax system. Macomb Daily columnist Chad Selweski has written, "Why should a couple of spry 68-year-olds who still work, earning $30,000 a year, plus a tax-free pension of $30,000, pay taxes on only half of their income when a couple of 60-year-olds with health problems, limping toward retirement on $30,000 in wages, pay taxes on all of their income?"

The changes to the tax laws a few years ago eliminated the Michigan Business Tax and was an overall tax cut.

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See also:

Why Good Tax Reform Is Difficult

Why Tax Cuts Matter More Than Increasing Credits and Exemptions

The Best Plan For Michigan Tax Reform

Meet James Hohman, Assistant Director of Fiscal Policy at the Mackinac Center. James discusses his latest project, an analysis of Proposal 1, the proposal on personal property tax reform that will appear on the August 5th ballot. Read more about Proposal 1 here: http://www.mackinac.org/20246


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