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Mich. Supreme Hears Pension Tax Arguments

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LANSING (WWJ/AP) - The State Supreme Court is hearing arguments Wednesday on an $800 million question: The constitutionality of Governor Rick Snyder’s pension tax.

Gov. Snyder said his revised tax plan would exempt the retirement income of those over age 66 from state income tax.

“So, basically, if you’re a senior that will be 67 in 2012, if your birthday is in 1946 or before, we’re not going to change how your retirement income is being treated at all, or your other investment earnings. That would stay the same as if it were under current law,” Snyder told WWJ in April.

For those 60 or over, Snyder said there will be a state income tax exemption of $20,000 for individuals and $40,000 for couples.

In court Wednesday, lawyers defended the Governor’s plan, arguing that the constitution gives the state ultimate taxing authority,  unless there’s a specific tax exemption written somewhere.

“When the ratifiers of the Constitution want to create a permanent constitution-based exemption they do so expressly,” said Solicitor General John Bursch.

“They did just that for property of non-profit religious organizations and the words there say that such property shall be exempt,” he said.

Meantime, opponents say language in the state constitution prevents public pensions from being taxed. They feel it’s a form of a graduated income tax which is prohibited by the constitution.

Supporters say it means promised pensions simply cannot be taken away and has nothing to do about possibly taxing them. The Michigan Chamber of Commerce and the business community that would benefit from the $1.8 billion tax cut that the pension tax helps to provide, say it is legal.

The governor needs the pension tax to help replace the money generated by the Michigan Business Tax. Pensioners stand to lose hundreds of millions of dollars if the Michigan Supreme Court upholds the constitutionality of the pension tax. A ruling against it could knock a big hole in the state budget.

“If the supreme court rules his pension tax illegal, he automatically has an $800 million hole in his budget. Believe me, he does not want to have that because he does not want to deal with more state service cuts,” WWJ’s Lansing Bureau Chief Tim Skubick said.

“However, this thing is pending that the State Supreme Court, they took the governor’s advice and took this case early so that it did not wind its way through the regular court systems, to speed up the process,” Skubick continued. “The Supreme Court will decide who is right in this very, very important legal battle.”

Gov. Snyder wants a Supreme Court advisory opinion that would effectively pre-empt any court challenge on the law filed by opponents such as public employee unions. If the court upholds the constitutionality of the pension tax, Gov. Snyder’s plan would go into effect January 1, 2012.

 tay with WWJ and CBSDetroit.com for the latest.

The Associated Press contributed to this report.

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