Editor’s Note: This column originally appeared in Crain’s Detroit Business on Sun., June 2.
Summer is almost here, and while we’re definitely looking forward to warmer temps and more sunshine, we at the League are laser-locked on the state budget process right now. While we try not to pick favorites, we have to admit that there’s an element of Governor Gretchen Whitmer’s budget that has been a favorite of ours for a long time: The EITC.
At both the federal and state level, the Earned Income Tax Credit (EITC) is arguably one of the most effective and beloved policies on our books today. What other policy boasts a list of supporters that includes presidents Gerald Ford, Ronald Reagan and Barack Obama, former U.S. House Speaker Paul Ryan, as well as Gov. Jennifer Granholm, former House Speaker Craig DeRoche and former Senate Majority Leader Ken Sikkema here in Michigan.
And we can add Gov. Whitmer, who included doubling the state EITC to 12% of the federal EITC in her 2020 budget proposal, to that long list of bipartisan supporters.
There’s a reason the EITC is usually looked at so favorably by Republicans and Democrats alike. While the credit benefits families directly, it has a ripple effect on local businesses and communities. And it is available to and utilized by residents in our state’s urban and rural areas—and red and blue legislative districts—alike.
Michigan’s EITC is available to any state taxpayers who file for the federal EITC, and the credits serve the same purpose. And while they generally share the same bipartisan support, our state EITC hasn’t enjoyed the same steady, upward trajectory as its federal counterpart.
In fact, in 2011 it was almost eliminated entirely under Gov. Rick Snyder’s massive tax shift, which asked residents to pay more so businesses could pay less—a shift our workers are still feeling the pain of today. The Michigan League for Public Policy and a broad coalition of advocates—including the Midwest Independent Retailers Association, the Community Economic Development Association of Michigan and AARP-Michigan—successfully fought to save it.
Keeping it alive in our laws was huge, but Michigan’s EITC still took a massive hit. The credit was cut from 20% of the federal credit to just 6% of the federal credit. Since 2011, Michigan’s EITC and the working families who rely on it have been quietly surviving and waiting for a better political climate to come.
That’s why Gov. Whitmer’s proposal to bump it back up is so significant. And a majority of Michigan residents see that as clearly as she does, with 67% of Michiganders favoring a state EITC increase, according to an EPIC-MRA poll conducted in March. Boosting the credit is a good step in undoing the damage of the 2011 cut and restoring the state EITC’s impact on Michigan workers, businesses and economy.
The credit has a significant impact on the households that receive it. It promotes work and is the best remedy for poverty in our toolbox. The EITC not only improves economic security, but other outcomes, as well. Among kids in families that receive the EITC, there are improvements in nutrition and educational and economic attainment, and a decreased incidence of low birthweight. A recent study by the University of California even found that increasing the EITC could help reduce suicide and drug and alcohol deaths in people who are financially struggling.
But beyond the benefits for working families, the EITC has a major impact on the communities they live in, as the money is usually spent on financial needs like bills, groceries, car repairs or a new appliance.
For the 2017 tax year, more than 748,500 Michigan households (about 15.6%) received the state EITC. At an average credit of $150, that pumped more than $112 million back into the state economy.
And if Gov. Whitmer’s proposed restoration were in place, it could double the economic impact on families, communities and local economies to the tune of around $224 million statewide.
A recent study by Michigan State University found that Gov. Whitmer’s proposed increase of the Michigan EITC would result in $95.2 million in added economic activity for an estimated 335,000 rural residents, with the largest economic impact taking place in northern counties of the Lower Peninsula.
The Michigan EITC’s benefits touch every corner of our state. But it can and should be doing so much more.
Gov. Whitmer’s proposed doubling of Michigan’s EITC has rightfully restored the public and political interest in the credit. Now we need action to restore the state credit itself. As the state budget process now shifts into its post-Mackinac gear, it’s incumbent on lawmakers to work with the governor to restore our state EITC, better support Michigan’s struggling families, and unleash more of the credit’s purchasing power in communities around the state.
P.S. Take a look at our latest geographic fact sheets to learn more about what the EITC does (and what it could be doing) in your county.