In re Request for Advisory Opinion Regarding Constitutionality of 2011 Pa 38.

CourtSupreme Court of Michigan
Citation490 Mich. 295,806 N.W.2d 683
Docket NumberDocket No. 143157.
PartiesIn re REQUEST FOR ADVISORY OPINION REGARDING CONSTITUTIONALITY OF 2011 PA 38.
Decision Date18 November 2011

OPINION TEXT STARTS HERE

West Codenotes

Held Unconstitutional

M.C.L.A. § 206.30(7, 9)

Bill Schuette, Attorney General, John J. Bursch, Solicitor General, Richard A. Bandstra, Chief Legal Counsel, and Bradley K. Morton, Assistant Attorney General, for the Attorney General in support of the constitutionality of the amendments of 2011 PA 38.

Bill Schuette, Attorney General, B. Eric Restuccia, Deputy Solicitor General, and Frank Monticello, Ann Sherman, Heidi Johnson-Mehney, Heather Meingast, and Amy Patterson, Assistant Attorney General, for the Attorney General in opposition to the constitutionality of the amendments of 2011 PA 38.D. Daniel McLellan and Stuart R. Cohen for amicus curiae the Michigan State Employee Retirees Association Coordinating Council, the Michigan Federation of Chapters of National Active and Retired Federal Employees Association, and AARP.Dickinson Wright PLLC (by Peter H. Ellsworth, Jeffrey V. Stuckey, and Peter J. Kulick), Lansing, for amicus curiae the Michigan Bankers Association, the Michigan Chambers of Commerce, and the Michigan Retailers Association.Honigman Miller Schwartz & Cohn LLP (John D. Pirich and Andrea L. Hansen), Lansing, for amicus curiae Business Leaders for Michigan and the Small Business Association of Michigan.Michael F. Saggau, Detriot, for amicus curiae International Union, United Automobile, Aerospace & Agriculture Implement Workers of America (UAW).White, Schneider, Young & Chiodini, P.C. (by James J. Chiodini and Timothy J. Dlugos), Okemos, for amicus curiae the Michigan Education Association.Sachs Waldman, P.C. (by Mary Ellen Gurewitz), Detroit, for amicus curiae Michigan State AFL-CIO and Services Employees International Union, Local 517M.

Opinion

MARKMAN, J.

Pursuant to Const. 1963, art. 3, § 8, this Court granted the Governor's request for an advisory opinion on the constitutionality of 2011 PA 38.1 More specifically, we granted the Governor's request to address the following four constitutional questions:

(1) whether reducing or eliminating the statutory exemption for public-pension incomes as described in MCL 206.30, as amended, impairs accrued financial benefits of a “pension plan [or] retirement system of the state [or] its political subdivisions under Const. 1963, art. 9, § 24; (2) whether reducing or eliminating the statutory tax exemption for pension incomes, as described in MCL 206.30, as amended, impairs a contract obligation in violation of Const. 1963, art. 1, § 10 or U.S. Const. art. I, § 10(1); (3) whether determining eligibility for income-tax exemptions on the basis of total household resources, or age and total household resources, as described in MCL 206.30(7) and (9), as amended, creates a graduated income tax in violation of Const. 1963, art. 9, § 7; and (4) whether determining eligibility for income-tax exemptions on the basis of date of birth, as described in MCL 206.30(9), as amended, violates equal protection of the law under Const. 1963, art. 1, § 2 or the Fourteenth Amendment of the United States Constitution. [ In re Request for Advisory Opinion Regarding Constitutionality of 2011 Pa. 38, 489 Mich. 954, 798 N.W.2d 353 (2011).]We answer all these questions, with the exception of whether 2011 PA 38 creates a graduated income tax, in the negative. That is, we hold that:

• Reducing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 2 does not impair accrued financial benefits of a “pension plan [or] retirement system of the state [or] its political subdivisions under Const. 1963, art. 9, § 24; and

• Reducing or eliminating the statutory tax exemption for pension incomes as set forth in MCL 206.30 does not impair a contractual obligation in violation of Const. 1963, art. 1, § 10 or U.S. Const. art. I, § 10(1).And we hold unanimously that:

• Determining eligibility for income-tax exemptions on the basis of date of birth as set forth in MCL 206.30(9) does not violate the equal protection of the law under Const. 1963, art. 1, § 2 or the Fourteenth Amendment of the United States Constitution; and

• Determining eligibility for income-tax exemptions and deductions on the basis of total household resources as set forth in MCL 206.30(7) and (9) does create a graduated income tax in violation of Const. 1963, art. 9, § 7.

Finally, we hold that:

• Pursuant to MCL 8.5, the unconstitutional portions of 2011 PA 38 can reasonably be severed from the remainder of the act, which is constitutional with respect to all the issues raised.

Although Justice Hathaway agrees that those portions of the statutes that we sever ought to be struck down because they are unconstitutional, she nevertheless asserts that we are “judicially creating tax deductions and exemptions for individuals earning more than $75,000 annually....” Post at 723. This is an odd assertion, given that she too would “create tax deductions and exemptions for individuals earning more than $75,000” by striking down the amendments of these provisions in their entirety and thereby returning the law to its pre–2011 PA 38 status, in which taxpayers earning more than $75,000 received these same deductions and exemptions.

We emphasize that the questions before us are all constitutional questions. This Court is not deciding whether 2011 PA 38 represents wise or unwise, prudent or imprudent public policy, only whether 2011 PA 38 is consistent with the constitutions of the United States and Michigan.

I. BACKGROUND

On May 25, 2011, the Governor signed into law Enrolled House Bill 4361, which became 2011 PA 38. The particular provisions at issue here are MCL 206.30(7) and MCL 206.30(9) of the Income Tax Act,3 which will take effect January 1, 2012. MCL 206.30(7) provides in pertinent part:

For a taxpayer whose total household resources 4 are $75,000.00 or more for a single return or $150,000.00 or more for a joint return, the personal exemption allowed under [ MCL 206.30(2) ] 5 shall be adjusted by multiplying the exemption for the tax year for a single return by a fraction, the numerator of which is $100,000.00 minus the taxpayer's total household resources, and the denominator of which is $25,000.00, and for a joint return by a fraction, the numerator of which is $200,000.00 minus the taxpayer's total household resources, and the denominator of which is $50,000.00. The personal exemption allowed under [ MCL 206.30(2) ] shall not be allowed for a single taxpayer whose total household resources exceed $100,000.00 or for joint filers whose total household resources exceed $200,000.00.

MCL 206.30(9) provides:

In determining taxable income under this section, the following limitations and restrictions apply:

(a) For a person born before 1946, this subsection provides no additional restrictions or limitations under [MCL 206.30(1)(f) ].

(b) For a person born in 1946 through 1952, the sum of the deductions under [MCL 206.30(1)(f)( i ), ( ii ), and ( iv ) ] 6 is limited to $20,000.00 for a single return and $40,000.00 for a joint return. After that person reaches the age of 67, the deductions under [ MCL 206.30(1)(f)( i ), ( ii ), and ( iv ) ] do not apply and that person is eligible for a deduction of $20,000.00 for a single return and $40,000.00 for a joint return, which deduction is available against all types of income and is not restricted to income from retirement or pension benefits. However if that person's total household resources exceed $75,000.00 for a single return or $150,000.00 for a joint return, that person is not eligible for a deduction of $20,000.00 for a single return and $40,000.00 for a joint return. A person that takes the deduction under [ MCL 206.30(1)(e) ] 7 is not eligible for the unrestricted deduction of $20,000.00 for a single return and $40,000.00 for a joint return under this subdivision.

(c) For a person born after 1952, the deduction under [MCL 206.30(1)(f)( i ), ( ii ), or ( iv ) ] does not apply. When that person reaches the age of 67, that person is eligible for a deduction of $20,000.00 for a single return and $40,000.00 for a joint return, which deduction is available against all types of income and is not restricted to income from retirement or pension benefits. If a person takes the deduction of $20,000.00 for a single return and $40,000.00 for a joint return, that person shall not take the deduction under [MCL 206.30(1)(f)( iii ) ] 8 and shall not take the personal exemption under [ MCL 206.30(2) ]. That person may elect not to take the deduction of $20,000.00 for a single return and $40,000.00 for a joint return and elect to take the deduction under [ MCL 206.30(1)(f)( iii ) ] and the personal exemption under [ MCL 206.30(2) ] if that election would reduce that person's tax liability. However, if that person's total household resources exceed $75,000.00 for a single return or $150,000.00 for a joint return, that person is not eligible for a deduction of $20,000.00 for a single return and $40,000.00 for a joint return. A person that takes the deduction under [ MCL 206.30(1)(e) ] is not eligible for the unrestricted deduction of $20,000.00 for a single return and $40,000.00 for a joint return under this subdivision.

(d) For a joint return, the limitations and restrictions in this subsection shall be applied based on the age of the older spouse filing the joint return.

Before the enactment of 2011 PA 38, public-pension benefits were completely deductible,9 private-pension benefits were deductible up to $42,240 for a single return and $84,480 for a joint return (subject to annual inflation adjustments), and all taxpayers were entitled to a personal exemption of $2,500 (subject to annual inflation adjustments). See MCL 206.30(1)(f), (2), and (7), as amended by 2009 PA 134. Pursuant to 2011 PA 38, however, not all public pensions are deductible, not all private...

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