The state Supreme Court heard arguments Wednesday on whether extending the Michigan income tax to pensions is legal. The arguments focused largely on whether the method in which the pension tax is phased in amounts to a graduated income tax. That is not allowed under the Michigan Constitution. Opponents also argued the tax violates the Michigan Constitution by reducing the income of public employees after the state agreed to a bargain.
Dan McLellan is an attorney for state and federal retirees, and the A-A-R-P. He says if public employees lose before the Supreme Court, they will go to federal courts.
McLellan says, "This is a contract that the people of the state of Michigan made with state employees, teachers, and other public employees and that contract is protected by the federal constitution and we're reasonably comfortable that the federal courts will enjoin the tax even if the court today says it's OK."
Governor Rick Snyder is counting on revenue from the tax on pensions to keep the state budget balanced. The Snyder administration argues the tax is fair because it treats everyone's income the same regardless of where it is from.
Lieutenant Governor Brian Calley was in the audience to watch the arguments. He says the new state budget will come up short if the tax on pensions is not upheld.
Lt. Governor Calley says, "We have passed a budget that's based on assumptions embedded in our tax system and, so the short-term critical component is that. Over the long term, it's very important that we treat citizens the same regardless of your source of income."
Calley says that's because, under the plan, everyone who makes enough money will pay the same four-point-three-five percent state income tax. He says the court should rule quickly to ensure budget stability.
It the tax is not upheld, the state budget will be short 340 (m) million dollars. The pension tax would help offset the revenue loss from eliminating the Michigan Business Tax.