By David Eggert, Associated Press
LANSING (AP) – Democrat Mark Schauer is centering his populist message against Republican Gov. Rick Snyder around a 3-year-old tax overhaul that lowered the burden on business but raised it on individuals.READ MORE: CDC: New Listeria Outbreak Tied To 23 Illnesses, 1 Death
No issue may better illustrate the gulf between the candidates than the tax changes, which the governor signed on his 145th day in office.
To Snyder, a former accountant, CEO and venture capitalist, the rewrite simplified the tax code, made it fairer and improved Michigan’s competitiveness and job creation efforts by scrapping a “dumb” business tax and replacing it with a flat corporate tax. About 91,000 businesses that paid the old tax in 2011 weren’t subject to the new one in 2012, according to the state Treasury Department.
To Schauer, a former congressman, state lawmaker and head of an anti-poverty agency who most recently secured construction business for labor unions, Snyder hurt the “wrong people” in partially offsetting the lost business tax revenue: pensioners, homeowners, low-income earners and taxpayers with children.
Initial projections pegged the overhaul as a $1.6 billion business tax cut and a $1.3 billion increase in individual income taxes.
Courting the prized seniors’ vote, Schauer is focusing much of his criticism on Snyder’s “job-killing pension tax.”
Until Snyder took office, Michigan exempted all Social Security and public pension benefits from income taxes, as well as up to $45,000 in private pensions, IRAs and annuities for a single return and about $90,000 for a joint return. Those with 401(k)s were taxed on a portion of their distributions.
Arguing that retirees needed to pay their share rather than push the burden onto younger residents, Snyder and GOP lawmakers enacted a three-tiered system:
— Anyone born before 1946 has seen no big change.
— Anyone born from 1946-52 has some of their retirement income exempted from taxation. The ceiling is $20,000 for single filers and $40,000 for joint filers and includes money from public and private pensions, 401(k)s and IRAs. A provision excluding wealthier taxpayers from exemptions was struck down by the Michigan Supreme Court.
— Anyone born after 1952 has their retirement income taxed the same as other income.
When people in the second and third groups turn 67, they receive an exemption of $20,000 for a single filer and $40,000 for joint filers, regardless of whether the money comes from retirement income or a current job. Social security benefits and military pensions aren’t taxed.
“What he’s done is created greater inequity in our tax code,” Schauer said in an interview. “I guarantee you no individual will feel like their taxes have become fairer. … They have only felt their taxes being increased.”
Snyder countered that it made no sense to treat public pensions, private pensions and 401(k)s differently while still taxing younger workers.READ MORE: Red Wings Hire Lightning Assistant Derek Lalonde As Coach
“To be blunt, I don’t think that’s fair,” he said during his lone debate with Schauer, noting that older people still working now get a new tax break. “So actually we helped seniors across the board.”
Of the 41 states with a broad-based income tax, 36 offer full or partial tax breaks on retirement income, according to a 2011 report from the National Conference of State Legislatures. Snyder contends Michigan’s scheme is still among the most generous to seniors in the U.S.
Michigan had been one of 10 states to exclude all government pension income from taxes.
Democrats also are criticizing other elements of the tax rewrite.
Homeowners and renters used to get a credit if their household income was below $83,000 a year. Now they don’t unless their total household resources are below $50,000 and their home’s taxable value is under $135,000.
The child credit is gone. So are previous exemptions for seniors and those getting at least half their income from unemployment checks.
A refundable credit for low-wage workers was reduced. Also eliminated were credits for city income taxes, college tuition, adoptions and donations to universities, public radio and TV stations, food banks and homeless shelters.
Snyder said under his plan, small businesses aren’t being double taxed.
His campaign pounced in the past week when Schauer — who wants to restore the $600-per-child tax credit and the homestead property credit for seniors while eliminating the “retirement tax” and increasing the credit for low-income earners — hinted at making up lost revenue by lowering the corporate income tax but assessing it on more businesses.
“They’re our job creators. They’re paying the same rate you and I pay on our individual income tax. We shouldn’t tax them more,” Snyder told reporters.
The Schauer campaign said he was answering a “hypothetical” question in an editorial board interview and hasn’t proposed specific changes to the corporate tax. During the debate, he noted there are 95,000 businesses that now don’t pay taxes.
That caused business groups to bristle. They argued businesses still pay sales, property and unemployment insurances taxes.
“I believe in a consumer-based economy,” Schauer said. “The evidence is clear when he’s taking money out of the pockets of families and retirees who live month to month, paycheck to paycheck, pension check to pension check — that hurts Michigan businesses and slows the economy.”
Another key component of the tax overhaul — setting the personal income tax rate at 4.25 percent — hasn’t been a big issue in the race. Schauer voted to raise the income tax in 2007 to end a budget crisis, and Snyder helped keep it from going back to 3.9 percent rate as planned.MORE NEWS: Troubling Arsenic Levels Found At Some Detroit Demolition Sites
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