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Michigan supreme court to rule on unconstitutionality of Snyder tax rules

Last week the Michigan Supreme Court held hearings on the constitutionality of two budget proposals that amount to tax increases, one on high-earning state residents and the other on the pensions of former public employees.

The new taxes were part of the budget for FY 2012. One applies the state income tax for the first time to public employee pensions. The other phases out the personal exemption for single filers who make more than $75,000 a year and joint filers above $150,000 a year.

The constitutionality of both are being challenged, but on different grounds. Plaintiffs argue that the pension tax violates a constitutional rule against reducing the accrued amount of a pension because taxing those earnings is a reduction in earnings. And another set of plaintiffs argues that the elimination of the personal exemption for high-income residents violates the state’s constitutional ban on a graduated income tax.

Peter Luke reports on some of the unusual circumstances at the hearings last week, which were held after the state’s high court agreed to hear the cases directly, bypassing the lower courts:

During Wednesday’s oral arguments at the Hall of Justice, the court had Attorney General Bill Schuette’s office argue both sides of constitutional issues Snyder has asked to be resolved before the plan takes effect Jan. 1.

That made for some odd moments.

Deputy Solicitor General Eric Restuccia, said applying different tax treatments to taxpayers based on income is unconstitutional. Solicitor General John Bursch, second only to Schuette in the office, argued that since the Snyder package doesn’t apply a higher tax rate to higher levels of income, it’s not a graduated tax and thus OK.

The main question for last week’s hearing was presumed to have been the issue of whether the state can apply the income tax to the pensions of retired public employees. Employee groups argue it’s an unconstitutional impairment of those pension benefits.

In the arguments Wednesday, justices didn’t show much interest. Perhaps that’s because the issue had been thoroughly briefed. Or maybe its because the court’s Republican majority doesn’t have a problem with it.

But judging from the questioning, justices did have issues with the personal exemption cutoff, and the position that the constitution’s framers really did allow the Legislature to tax upper-income households more thoroughly than lower-income households.

No word yet on how soon the court will rule on either case.

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