The Michigan legislature is looking for revenue to make up for the large deficit we are facing. Recently, reports have suggested that Michigan should question its retiree pension tax exemptions. According to the Michigan Department of Treasury, taxing all retirement income could generate between $600-700 million.
A study conducted by the Pew Center on the States [http://www.pewcenteronthestates.org/uploadedFiles/wwwpewcenteronthestatesorg/Michigan.pdf?n=6479] found that "the state's ranks of adults 65 and over have grown 7% since 2000...[and it is expected to increase], retirees benefit from the state's generous income tax exemptions fro pensions and other retirement income." In a sense, Michigan's 65 and older population is growing, and this means there are less taxes coming in (due to all of the exemptions they receive). .
The proposal of taxing pensions has received mixed responses. Due to the large amount of senior citizens, many legislators would be dealing with large protests from this age group. Many retirees are not well off, and this could end up hurting them in the long run. Retirees have been counting on their pensions from the moment they even considered retiring, and suggesting a tax on these would be a burden and upset many seniors.
Those in favor of the tax point out that Michigan is one of the most generous states in regards to tax exemptions for senior citizens. The majority of those in favor also seem to agree that higher pensions should be more heavily taxed.
Steve Gools, AARP Michigan senior state director, even said that the AARP "could support retirement income if it was part of a broad plan of fairer taxes...We believe that a tax policy should be progressive...But we should not attempt to balance Michigan's budget on the backs of senior citizens alone. We need a fair and balanced approach"[http://www.freep.com/article/20091206/NEWS06/912060446/Should-Michigan-tax-pensions]
As Michigan stands right now, it will probably be very hard to accomplish. Beside the fact that not many legislators want to step into a battle like this with the senior citizen community, it also may be illegal. Michigan's constitution currently does not allow pension benefits from public retirees to be tampered with [http://www.legislature.mi.gov/documents/publications/Constitution.pdf; Article IX, Sec. 24]. Many people believe that if this tax were imposed it would be contradictory to this law, and so an amendment must first be produced to even act upon this suggestion.