New proposal From Michigan's Governor

[DFR]

As part of his new budget, he has proposed taxing public and private pensions for the first time. I am wondering how much more of a population drop will occur.

[a k]

Get used to it. They've been taxing mine for 14 years. Free rides are over.

Actually, thats what's causing it. TOO many on the free ride.

[wa8yxm]

Contact your congress critter (As I did yesterday) and remind them that we retirees have lots of time to work on political compagines and if they wish us to work for THEM and not the other guy.

VOTE THIS ILL CONCEIVED PLAN INTO OBLIVION!

[wildtoad]

The feds and state tax my withdrawels from my IRA, why should pensions be any different? I got a tax break when I put the money in, so now is the time to pay up. I don't like it much but it seems fair to me.

[GaryKD]

The difference is changing the rules for people who have no way to make up the loss of the new tax. As we progress through our life and revenue earning careers we make decisions based on the rules we are to play by. How/where to save for retirement is one of these decisions. All the opportunities to save for retirement come with their own set of rules.

The difficult and unfair part is changing the rules after one looses the ability to earn revenue to recover from the rules change.

I do not know the details of the proposal. In private industry defined benefit plans are sold to employees as deferred compensation plans. Many state governments have sold their defined benefit plan as not only deferred compensation but also free of state income tax. People take this into consideration when making their other retirement savings plans. People may also make job choices (less W2 now for more during retirement) based on the overall compensation package during and after the working years.

While the rules may need to be changed, for me, do not change the rules for those who are about to or are already retired.

[cabin man]

Very well said Gary I agree with you 100 percent.

[wa8yxm]

Gary, when a pension plan is written the employer and the worker consider the tax.. As a retiree from and in the state of Michigan (I worked for the state) I do pay FEDERAL tax.. But the retirement pension I get takes into account the fact I do not pay state tax.

What he is purposing is a cut in my benefits.. that simple.

and this applies to thousands of others too. It's ripping us off.

Now if you worked for say Chrysler... Well, the same applies there, part of your decision to take early retirement was based on the pension tax or rather lack of one.

[GaryKD]

Hi wa8yxm,
So you have no problem with the main point of my post?

[wnytaxman]

Correct me if I'm wrong on this, but in Michigan as in many other states, aren't your public pensions non-contributory? Most public pensions are on the backs of the taxpayers with the employees paying little or nothing into those plans. I have never understood the logic of taxing those who work in the private sector and exempting those who work in the public sector. That is the system that exists here in NY and it is part of the problem the state is in. As older members of our society we tend to use a pretty good chunk of tax dollars. Shouldn't we contribute to that drain on the state coffers?

I understand your logic of people plan on a given number of dollars to live but the effect of this tax is a lot less than the effect that inflation would have on those fixed dollars. Perhaps your cure may be to tax those that retire after a certain date. That would alleviate the burden on those that retired earlier and allow those that are retiring later to plan accordingly.

[DFR]

Quote:

Originally Posted by wnytaxman Correct me if I'm wrong on this, but in Michigan as in many other states, aren't your public pensions non-contributory? Most public pensions are on the backs of the taxpayers with the employees paying little or nothing into those plans. I have never understood the logic of taxing those who work in the private sector and exempting those who work in the public sector. That is the system that exists here in NY and it is part of the problem the state is in. As older members of our society we tend to use a pretty good chunk of tax dollars. Shouldn't we contribute to that drain on the state coffers?

His proposal is to tax BOTH Public and Private pensions, which weren't before. What difference is it how they were funded. Wages can be adjusted up or down to account for full or partial funding.

[GaryKD]

Hi wnytaxman,

It matters not if the employee directly contributed to the pension or indirectly contributes via a lower W2, the results of a late in life change is the same.

Generally, employees of a state live in that state. During their revenue earning years they are taxpayers who indirectly contribute to their pensions by paying the same taxes all other residents pay.

Funding of non-government defined benefit plans is complex and closely follows Federal and appropriate State tax laws to ensure the company receives the maximum tax deductions. Funding of Government employee defined benefit plans is through the Government's revenue collecting ability. This included many taxing sources as well as investment earnings on the $s in the retirement account.

All that being said, the bottom line is changing the rules after the point where a person can recover from the change is inappropriate and just wrong. The only remedy I know of is having elected representatives who are fiscally responsible. That rarely seems to be the environment we find ourselves in. As long as those who cast ballots allow this to continue, we will continue to be wronged. It will just happen later in life.

[hondo122]

You can't change the rules after the game is played just because you don't like the outcome!

[wnytaxman]

I certainly understand what you are saying about changing the rules after the game has been played, but let me give you a slightly different twist on what could happen. If pensions remain untaxed it may force the state into either a bankrupt situation or one where the pensions just simply go unpaid. Where would that leave pensioners? Most states are in dire financial times due to over zealous giveaways and programs that they could not afford. Now everyone must suffer for the sins of the past. Is it pleasant? No, but it is probably necessary.

Part of the argument here is vote the bums out. Well, that is certainly an option, but how did things get out of control in the first place? Mostly past administrations spent more than they had coming in with the idea that more would come in later and let's postpone paying for this until later. I think later is now.

Years ago I had a client who inherited a great business. Shortly after he took over he started to bleed the business by taking out way more than the business could afford. I warned him that he had to stop taking out more than was coming in. His comment back was "I have to have this much to live on." As you can well guess, the business went down and finally folded. I have no idea what he is living on now, but it is way less than it was. Given the choices between no pensions or pensions that are taxable would seem to me to be a fairly simple choice.

[Finhawk]

All I can say is that my military retirement is taxed. Big deal, I don't worry about it.