LANSING — A business group on Monday requested changes to fast-tracked bills that would reverse Michigan’s “retirement tax,” proposing revisions its leader said would narrow disparities in how different seniors would be taxed under the legislation.
The Small Business Association of Michigan pitched its proposal as fairer to different types of retirees while not penalizing older people for working, which could affect the labor pool for the group’s small-business members.
If the SBAM’s proposal was enacted, private-sector retirees and working seniors could exempt up to $65,000 of pension and/or job income for single filers and $130,000 for joint filers. That would be a significant boost from the existing $20,000 and $40,000 deductions authorized for certain people once they turn 67.
Democrats who control the Legislature plan to fully exempt government pensions, as was done until 2011. They also want to make many more retirees eligible for exemptions for private pensions, 401(k)s and annuities again — about $57,000 for a single return and $114,000 for a joint return, adjusted annually for inflation.
The business association also pushed lawmakers to consider lowering the age to 59 1/2, from 67, that people who are still working could claim its proposed $65,000 and $130,000 deductions.
President and CEO Brian Calley said SBAM is not lobbying for changes to the current system because “leaving it the same would be fine.” But since legislators are planning to reverse the 2011 law, he said, small business owners and retirees of small businesses who have 401(k)s or individual retirement accounts “should be treated more equitably.”
“Ideally, it would be equally, although there doesn’t seem to be much appetite for that — to make them exactly the same,” Calley told reporters in a late-afternoon news conference. “But we do have a proposal here, something that we think makes sense, that makes it largely the same for most retirees.”
Noting that Michigan has the country’s 11th-lowest labor force participation rate, he said there should not be a “penalty” for continuing to work. Treating older workers and retirees differently “doesn’t make policy or political sense,” he said.
Spokespeople for House Speaker Joe Tate and Senate Majority Leader Winnie Brinks did not immediately respond to requests for comment.
As lieutenant governor, Calley cast the tie-breaking Senate vote for a Republican-written tax overhaul that ended or reduced retiree exemptions for people born after 1945. Democrats, with some Republican support, last week passed different versions of measures to unwind the “pension tax” — one to apply for this tax year, the other to be phased in by the 2026 tax year.
It was not clear how quickly lawmakers may reach an agreement, though the issue is an early second-term priority for Democratic Gov. Gretchen Whitmer.
Calley said SBAM’s advocacy is member-driven and unrelated to policies he helped to enact with former Gov. Rick Snyder. He pointed to a recent survey that showed a high level of consensus among small business owners favoring equitable treatment for people with pensions and other retirement plans.
“It made it that much more important for the association to speak into the process,” he said.