In Re Request for Advisory Opinion Regarding Constitutionality of 2011 PA 38
806 N.W.2d 683
Mich.2011Background
- Governor requested Michigan Supreme Court advisory opinion on constitutionality of 2011 PA 38; questions concerned taxation of public-pension income and exemptions under Michigan and US constitutions.
- Statute at issue, MCL 206.30(7) and (9), enacted as part of 2011 PA 38, alters pension exemptions and deductions based on total household resources and age.
- Pre-PA 38, public pensions were fully deductible; after 38, exemptions/deductions are income-sensitive and subject to thresholds.
- Court granted advisory opinions, with majority holding four constitutional questions negatively and severability of unconstitutional portions.
- Court held that severance under MCL 8.5 can excise unconstitutional portions while leaving remainder operable, and addressed equal protection and graduated tax concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the pension exemption reduction impair accrued financial benefits under art 9, §24? | Governor argues yes; exemptions are accrued benefits. | Attorney General argues no; exemptions are not accrued benefits. | No impairment of accrued financial benefits. |
| Does tax-exemption reduction impair a contractual obligation under art 1, §10 or US Const, art I, §10(1)? | Governor contends exemptions are contractual rights. | AG contends no contractual right to tax exemptions existed. | No contractual impairment. |
| Does age-based or age+resources-based eligibility for exemptions violate equal protection? | Governor disputes heightened scrutiny; argues rational basis. | AG asserts rational-basis review governs; age is not a suspect class. | No equal protection violation (rational basis). |
| Do income-based exemptions/deductions create a graduated income tax in violation of art 9, §7? | Governor argues tax is graduated by base due to exemptions/deductions tied to income. | AG contends no base-based graduation; flat rate remains, but base changes create graduated effect. | Yes, creates graduated income tax in violation of art 9, §7. |
| Should unconstitutional portions be severed under MCL 8.5? | Governor/majority favor severing unconstitutional provisions while preserving remainder. | Some dissent argues severance would rewrite the statute beyond legislative intent. | Unconstitutional portions severable; remainder constitutional. |
Key Cases Cited
- Studier v Mich Pub Sch Employees’ Retirement Bd, 472 Mich 642 (2005) (defined ‘accrued financial benefits’ and distinguished health-care benefits.)
- Kuhn v Dep’t of Treasury, 384 Mich 378 (1971) (addressed no graduation of tax rates when credits are income-neutral.)
- Butcher v Dep’t of Treasury, 425 Mich 262 (1986) (discussed income-based credits and graduation concerns.)
- Detroit v Walker, 445 Mich 682 (1994) (taxation power; no vested right in tax statute; legislature can change tax laws.)
- Nat’l R Passenger Corp v Atchison, Topeka & Santa Fe Ry Co., 470 U.S. 451 (1985) (presumption that statutes do not create contractual rights absent clear language.)
- Nordlinger v Hahn, 505 U.S. 1 (1992) (equal protection rational basis standard for age classifications.)