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.
