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AARP Michigan: Repeal ‘Unfair’ Pension Tax

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LANSING (WWJ/AP) - The Michigan Supreme Court has given the thumbs up to a new tax on pensions.

The tax is expected to pump over $300 million into the state’s coffers, but the AARP’s Mark Hornbeck said it’s unfair to Michigan’s seniors.

“Retirees had based their retirement plans on the no-tax status of pensions, and that’s why it’s unfair,” said Hornbeck.

Now, the AARP is pressing the State Legislature to overturn the new tax on public and private pensions.

“Not only are we talking about a pension tax in the State of Michigan, the discussion in Washington has been over possible cuts to social security and Medicare, so they’re sort of facing a triple threat,” said Hornbeck

Starting January 1, everyone under the age of 67 in Michigan will begin to pay the state income tax of 4.35 percent on their pensions. This was one of the center pieces of Governor Rick Snyder’s revised plan upheld by the Supreme Court on a 4-3 vote.

A statement from the Snyder administration said changes from the ruling could create an estimated $60 million shortfall for the state’s 2012 fiscal year budget. But Snyder said he was “pleased” overall with the court’s ruling.

“Our administration has been unwavering in its position that the removal of the public pension income tax exemption was the right and prudent thing to do,” Snyder said in a statement. “It will provide for the long-term structural stability of the state’s budget while minimizing the impact on current retirees and seniors. This will help get Michigan’s fiscal house in order and economy back on track.”

Opponents of the law say it will reduce the pension income that public-sector employees have already earned. They also say the tax violates public workers’ constitutional right to not have their contracts impaired.

The Michigan AFL-CIO said the ruling is “a partisan decision that will hurt Michigan seniors, and is yet another example of the misplaced priorities of Lansing politicians.”

It was not immediately known what legal steps opponents might take next.

Under the new law, residents born before 1946 would continue to get the same tax breaks they have now, but younger retirees would have some retirement income taxed, depending on when they were born.

Chief Justice Robert Young Jr., along with Justices Mary Beth Kelly and Brian Zahra, joined Markman in the majority opinion.

Justices Michael Cavanagh and Marilyn Kelly dissented in part and concurred in part. Justice Diane Hathaway dissented, although she agreed the income-based criteria for determining tax liability created a graduated income tax.

More on this story, here.

TM and © Copyright 2011 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2011 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press contributed to this report.

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