Michigan will use a chunk of surplus revenue to pay for the one component of the pension tax overturned by the state Supreme Court in its Nov. 18, 2011 decision.
The state was left with a $60 million bill for fiscal year 2012 when the court overruled a piece of the legislation that granted exemptions on the basis of household resources. It ruled this created a graduated tax, which is illegal under the 1963 constitution.
But the money required to extend the exemption to all senior filers will not pose a problem for the state, nor will it cut into its modest available surplus, said Kurt Weiss, the spokesman for the Department of Technology, Management and Budget.
Although the state's available surplus is only $457 million, the books actually showed balances greater than $1 billion. The additional $600 million or so was all already dedicated to commitments like the additional $60 million required by the Supreme Court ruling. The additional money required will not put the state behind at all, and it also does not cut into the first modest surplus boasted by the state in years.
The tax reform, championed by Gov. Rick Snyder, ends the income tax exemption previously granted to seniors receiving public pensions. Soon after its passage, Snyder asked the Supreme Court, which boasts a Republican majority, to examine the reform to supersede any potential lower court challenges.
The ruling was overwhelmingly a victory for Snyder and the Republicans in the Legislature. However, the Court took umbrage with a section of the reform that included a $3,700 exemption that phased out for single filers making more than $75,000 or joint filers making more than $150,000.
At the time of the ruling, Democrats bemoaned the decision, but did not seem intent on pressing the Snyder administration or other Republicans for a payment method. Instead, a week after the ruling, the Michigan Democratic Party published a video and accompanying press release decrying the court.
"This is one of the most partisan, special interest-controlled courts in the country," chair Mark Brewer said. "Just last week the Court favored corporations and the wealthy over seniors on tax issues and big banks over homeowners on foreclosures."
Frustrating Democrats, the Court upheld a controversial aspect of the reform that phased in the tax based on seniors' year of birth. This removes the burden of an unexpected tax from seniors 67 and older (as of Jan. 1) and lessens it for those ages 60-66 (as of Jan. 1), requiring only younger citizens with time to plan financially to pay the full tax, proponents said. In doing so, the court invalidated the complaints of many opponents who said that the tax violated public workers' constitutional right to not have their contracts impaired.
The court came to a 4-3 decision, although all seven justices agreed the phased out exemption created a graduated tax.