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Michigan a favorable tax state for pensioners

April 14, 2010 - Jim Anderson
When it comes to state income taxes, retirees in Michigan have it pretty good compared to the rest of the nation.

Studies by Michigan State University have shown that about 95 percent of the state’s senior citizens pay no state income tax. That’s largely because Michigan levies:

— No state income tax on Social Security income.

— No state income tax on public pension income.

— No state income tax on private pension income up to $45,120 for a single person and $90,240 for a married couple.

Also, many seniors are eligible for payments from the state through the Homestead Property Tax Credit.

The state’s senior tax preferences have caught the attention of the Michigan League for Human Services (MLHS), an advocacy group for the poor.

The league has pointed out that Michigan’s senior tax preferences are about double the average of other Great Lakes states and more than three times the national average.

Last fall, tax-policy expert Bob Swanson, a state government retiree who serves on the MLHS board of directors, told the Associated Press, “We’re exempting a lot of people who certainly could afford to pay. I don’t think anyone is saying, ‘Don't have any senior tax preferences.’ But target them better on the people who need them.”

Of course, even modest alterations in the state’s income tax code for seniors is a tough political sell. Despite Michigan’s well-publicized fiscal problems, no lawmakers are asking to freeze or lower exemption levels for seniors.

Meanwhile, low- and middle-income families in Michigan pay a higher share of their income in state and local taxes than do the richest families.

In its annual “Who Pays?” study, the Institute on Taxation and Economic Policy found that the poorest fifth of Michigan’s non-elderly taxpayers (families earning less than $15,000) on average pay 8.9 percent of their income in state and local taxes.

When all Michigan taxes are totaled up, middle-income taxpayers earning between $32,000 and $54,000 on average pay 9.8 percent of their income in state and local taxes. Michigan taxpayers with incomes of $1.1 million pay about 6.4 percent of their income in state and local taxes.

While the rich carry the greatest burden of federal income taxes, when all taxes are included, the obligation is widespread. Nationwide, the lowest-earning half of America pays about 24 percent of their income in taxes (including federal, state, local, social security, sales and excise), according to Paul Buchheit of DePaul University, citing IRS and Congressional Budget Office data.


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