Senior tax breaks do more harm than good, national report says

LANSING — Seniors in Michigan pay less than half the taxes that residents under 65 — and who have similar incomes — pay, according to a recent national report.

That cost Michigan 14% in income tax revenue in 2017, the second-greatest rate in the country, according to the report by the Center on Budget and Policy Priorities in Washington, D.C. Only South Carolina is more generous to older residents.

Tax breaks target the wrong people and older residents who are wealthy don’t require them, said Brandon Betz, a tax policy analyst at the Michigan League for Public Policy. They are geared for seniors with pensions and retirement savings. But they are needed by seniors who lack such savings.

Despite the breaks that benefit even wealthy seniors, officials still are looking to lower their taxes.

Last year, a bill pushed by Gov. Gretchen Whitmer would have eliminated taxes on government workers’ pensions. The tax on pensions was proposed by then-Gov. Rick Snyder in 2011.

The proposal died because of questions about how to replace the $330 million in lost tax revenue.

The state is walking a tightrope and needs to be careful with similar bills, said Liz McNichol, a senior fellow at the Center on Budget and Policy Priorities, the nonpartisan research group that did the nationwide study.

State officials would be better suited to “tax seniors on an income basis to better help senior groups that need the help,” she said.

The intent of the bill put forth by Snyder was to stop favoring seniors who receive pensions and may have higher incomes than others.

Income inequality between seniors and younger people in the U.S. is higher than in any country in the Organization for Economic Co-operation and Development except Chile and Mexico, Peter Whoriskey of the Washington Post reported in 2017.

States, including Michigan, should target tax benefits to groups with lower incomes and that have been historically held back from obtaining secure savings and assets, according to the Center on Budget and Policy Priorities.

However, the report questions the political possibility of changes to target benefits only to older adults with lower incomes.

Older Americans disproportionately vote and their influence at the polls will only grow as the general population of the U.S. ages, it said.

Mark Hornbeck, the communications director for AARP Michigan, said that seniors were hurt by the 2011 pension tax bill and any changes will further cut into their fixed incomes.

As a matter of fairness, AARP favors anything that gives seniors a break on pensions, he said.

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