Sidebar: TIN-flation

Recently Rick Snyder, the newly elected “One Tough Nerd” governor of Michigan, put forward his proposals to get the state out of its huge fiscal deficit: one of them was to no longer exempt pensions from the state income tax. Apparently this would bring revenues of roughly $900 million for the state.

At first, the thought that retired hardcore Republican Michigan residents (like Rich Peasel, and other retirees I know) would now have to pay this tax made me smugly smile and giggle with vengeful pleasure. Rich has gone silent lately with his Flint Journal journalistic career: maybe because he knows he might see a comment from me that says “Hey Rich—how’s that voting for Rick Snyder workin’ out for ya?” But eventually, the tax implications also came home to roost for me as well, when I sat down with a calculator to determine their impact.

Michigan has a lot of auto company retirees and public employees with pretty sizable defined benefit pensions. So it made sense in that regard. On the other hand, the pensions are fixed incomes: for most retirees, it’s a zero sum game. If you’re working, you might be able to make up for the income lost by a new tax by working harder, by getting another job, by getting a raise or bonus. But if you are elderly and not able to work (especially in this economic climate), you have to take from something else in your budget to pay the tax. So it means that $900 million will come out of the Michigan economy somewhere because consumption will be reduced.

But there’s another factor at play for me, and I call it TIN-flation: it’s the combination of TAXES and INSURANCE. Inflation has been relatively benign since the 1970’s: and as a consumer, we have some degree of control over it. It was not a huge concern for me when I retired in 2008, I had some strategy for contending with it. But taxes and insurance have already eaten away, by my estimation, almost 10% of my income. And both are something over which I have NO control, except perhaps with the income tax proposal by Governor Snyder.

So I am personally faced with changing my state residency status, but that is sort of replacing six of one with half a dozen of the other financially: my property taxes in Michigan as a non-resident homeowner would double by almost exactly the amount of the additional income tax. However, my Florida taxes would be reduced by half; and in all this mix is the federal income tax deduction consideration. In the future (few years), I hope to sell the Michigan home and be a permanent resident of Florida, so the Michigan income taxes, if enacted, will at best be only temporary.

Taxes and Insurance are causing
almost all my "inflation."

And not just the taxes. The year after I retired, my company decided it could no longer afford to pay as much for early retiree healthcare, so they gave us one, single “choice”: a CDHD (Consumer Driven High Deductible) healthcare plan, which is essentially major medical with a tax-deductible HSA (health savings account). My monthly premium tripled, and I also had to put aside funds for the HSA. I also lost my dental insurance, which would have to be covered through the HSA as well. For basic dental care, twice a year cleaning and X-rays only, it meant my dental “insurance” doubled, more if I needed fillings or other work (I have pretty good genes except for my teeth).

I should note that the 10% eaten away of my income also includes a 55% increase from 2009 to 2010 in my Florida homeowners’ insurance. Hurricane reserves and state mandates supposedly caused that. But I was able to reduce that increase to 36% by finding another insurer. You can’t do that, however, with healthcare insurance and taxes, because you have almost no options....it's a "monopoly."

But maybe I should feel lucky I have any insurance at all, and an income. I certainly do. You can see, however, how inflation comes about, or this case, TIN-flation.