Michigan deficit plan: Raise taxes on poor

Going after those on the low end of the economic ladder, Republicans in the Michigan Legislature want to eliminate the Earned Income Tax Credit (EITC) for the working poor. As a result, living in Michigan with its double digit unemployment rate will become even more difficult for thousands, particularly children.

Michigan’s EITC mirrors the national program by providing qualifying low-income residents with a tax credit equal to 20 percent of the federal credit – with the state credit ranging from $91 for residents aged 25 through 64 without any children to $1,133 for families with three or more offspring. 

It is a program with enormous benefits. The Michigan League for Human Services says the credit benefits 700,000 working parents and their children and keeps 25,000 families out of poverty.

With so many families in need why are Republicans considering cutting the program?

Incredibly, the working poor are being asked to make up the difference in revenue lost because more tax breaks are planned for businesses and corporations.

Also incredibly, some Republicans are claiming this is not “raising taxes” as the overall tax rate will not climb, just that of poor people.

The Michigan League for Human Services in a statement released Jan 13 cut through such contorted thinking. Its president and CEO Gilda Jacobs said this about Michigan House Speaker Chase Bolger’s plan to eliminate the EITC:

“While we recognize the desire for everybody in the state to share in the sacrifice, poor people are being asked to be the sacrificial lambs. The Michigan Earned Income Tax Credit, which helps low- and moderate-income working households, should not be the first credit considered among Michigan’s $34 billion list of tax expenditures, including tax breaks for big corporations.

“Eliminating the EITC will put more of the tax burden on those who can least afford it – the families of minimum wage workers and those who do important work in our state including janitors, waitresses, home care aides and child care workers.

“Also, the credit is a proven economic stimulus, and its elimination will hurt small business in local communities across the state. A report by the Anderson Economic Group finds that for each $1 in federal earned income tax credit, $1.67 is generated in economic activity.

“Prior to the nearly unanimous enactment of the state EITC in 2006, Michigan’s income tax code was among the harshest in the country for taxing people living deep in poverty. Now we are about average among the states for the point at which we tax income. At the same time, our tax code means our wealthiest taxpayers pay less in state income taxes than higher-income taxpayers in about 40 states.

“Our lawmakers need to make sure the most vulnerable among us are protected as we continue to weather difficult economic times. This action, however, would deeply harm some of the most vulnerable people in our state, including the half-million children living in poverty.”

There does need to be a revision of the Michigan tax code. However by going in this direction, Michigan Republicans will be making the problem worse.

The short-term solution to Michigan’s deficit problems is raising taxes. Of course, the question is raise taxes on whom? The Michigan League for Human Services says changing Michigan’s flat 4.5 percent income tax to a graduated tax increase would shift the burden to those who can afford to pay. Raising taxes on the top 5 percent of incomes, with a maximum rate of 8 percent, could raise an additional $600 million per year while cutting taxes for 90 percent of the people.

Photo: (John Rummel/PW)