It’s rare that a tax policy in Michigan enjoys broad bipartisan support. Lansing is now debating that rare example, an expansion of a tax credit aimed at working families.
What if I told you a single tax law change in Michigan could:
- Provide simple and effective tax relief for Michigan working families. In fact, it has a long track record of being one of government’s most important anti-poverty programs.
- Directly support Michigan’s small business community.
- Give an important boost to the state’s long-term economic growth.
The Earned Income Tax Credit is a refundable federal tax credit, available only to working taxpayers with special supports for those with children, established over 40 years ago with support from both Democrats and Republicans.
Michigan, like 30 other states, provides a state income tax credit tied directly to the requirements of the federal credit. First established in 2006, Michigan’s EITC has ranged from 20 percent of the federal credit, to 6 percent today.
Senate Bill 417, sponsored by State Sen. Wayne Schmidt, would gradually increase Michigan’s EITC to 30 percent. And that’s the tax cut proposal finding strong support from business groups — including nearly a dozen local chambers of commerce, from Midland to Detroit, along with the Michigan Manufacturers Association, Small Business Association of Michigan, the Health Care Association of Michigan, Michigan Restaurant and Lodging Association, religious organizations, and local service groups like United Ways around the state.
Michigan’s EITC provides a tax cut, not a new state program, to Michigan’s working families. Very little bureaucracy is required, meaning more of the dollars end up supporting families.
There are three key reasons I fully support SB 417:
- The EITC has a proven track record of pulling people into the workforce. Especially these days, as Michigan employers struggle to find workers, the EITC increases the after-tax financial benefit of work. In contrast to other government programs, families must work and file a federal income tax form to be eligible. This return-to-work incentive benefits all employers, especially the state’s small businesses.
- An increase in the EITC directly supports struggling Michigan families. It provides direct support for those in need — and more relief to those most in need. It’s no secret that for decades, the state and national economy has generated a record number of jobs, but lacks good-paying jobs, such as jobs that can support a middle-class family. By some measures, nearly 40 percent of Michigan families do not earn enough to support a family with basic necessities. In addition, while it will take years for the full economic impact of the pandemic to play out, the past two years have only increased the lack of good-paying jobs and growing inequity. Many families use the EITC for just a few years, as a hand up, not a handout.
- Increasing the EITC can act as a catalyst for overall economic growth. Long-term economic growth is determined by the number of workers and productivity. Decades of research has shown the EITC is effective in drawing people back into the labor force. In this way, all Michiganders benefit from an increase in the EITC.
The EITC is a win for Michigan families, employers, and the overall state economy. A broad coalition of more than 80 business groups, nonprofits, and foundations has come together to support an increase in the EITC, for the reasons outlined above. Now is the time for the Legislature and Gov. Gretchen Whitmer to increase the Michigan EITC and pass SB 417.