Reforming Michigan's Tax System for the Future
Governor Rick Snyder
October 8, 2012
When I came into office, I faced a big problem, and it's one that's been hanging over Michigan since the 1960s. It's the problem of an unfair tax system we can't afford, and I thought it was time to do something about it, once and for all. (Blog continued below)
The Inequity of the Old System
Under the old system, our state decided to give special tax exemptions to certain kinds of pensions. Meanwhile, other people were stuck paying higher taxes, even if they earned much less money.
Let's start with seniors. Under the old system, two seniors of the same age with the same overall income may have paid different amounts of taxes. For example, that could have happened if one senior was retired and drawing a pension while the other continued to work because they did not have a pension benefit. The reason for the different result? Pensions and other retirement income were tax exempt while wage and salary income for seniors was subject to tax.
The inequity was across age groups, too. Because of the way the tax system was set up, a senior couple earning $59,000 mainly from pensions and social security would have paid no taxes and received $400 from the state. Meanwhile, a non-senior working couple with children and a household income of $49,000 had to pay $1,075 in Michigan income tax. As you can see, younger people with less income were paying more in taxes than seniors with much higher income.
Why This Was A Problem
There's no doubt about it that some people in the old system got a pretty good deal, but it was one that we simply couldn't afford. When it came down to it, we had a serious math problem on our hands –the number of people who would not be paying would be growing dramatically over the next decade as the population ages.
When I came into office, Michigan faced a $1.5 billion budget deficit, and the pension tax exemption was costing us $930 million per year. With the population getting older, that hole would have grown because fewer people would be paying taxes. In order to make ends meet, the state would have been forced to drastically cut services or dramatically raise taxes on younger workers – driving them out of the state.
In order to solve the problem, we enacted sweeping reforms to the tax system that treat people and job creators fairly while also creating a good environment for economic growth. In a nutshell, here's what we're doing:
- Protect current seniors (who will see no changes to their pension exemptions)
- Lower everyone's tax rate from 4.35% to 4.25% beginning October 1, 2012
- Gradually transform the current retirement income exemption into an exemption that benefits all seniors 67+
- Continue to exempt 100% of Social Security income
- Scrapped the Michigan Business Tax, which drove job creators out of the state
- Enacted a fairer business tax system designed to create an environment for job growth
When I came into office, I faced an unfortunate reality. Our state was under water. Government was spending too much, taxing too much, and making promises it couldn't keep. We had a serious problem that wasn't going to be solved by looking away or kicking it down the road. All of us were paying the price, and you hired me to do something about it.
If we want to keep young people in our state, attract new people to move here, and build a stronger economy, we can't keep asking some Michiganders to shoulder the cost of our government while others get a free pass. We need a government that treats everyone fairly, provides relief for those who need it, and helps us build for the future. That's what we're creating with these new reforms to our tax system.