Whether you love it or hate it, the new tax cut deal reached in Washington does offer some important benefits for low- and moderate-income families in Michigan.

While the debate has raged over tax breaks for the very rich, perhaps lost in the headlines is the inclusion of tax credits for families that were originally enhanced by the American Recovery and Reinvestment Act  of 2009 (also known as the stimulus package).

These credits, originally passed as one-year credits, target people who do important work for low pay, such as nursing home workers, child care workers, janitors and waitresses. As part of the newly inked deal, expansions in the Child Tax Credit and the Earned Income Tax Credit will be extended for two years.

The Child Tax Credit lowered the minimum income amount ($3,000 in tax year 2009 as opposed to $8,500 in tax year 2010) and made other changes. 

Here’s why this is so critical: If the Child Tax Credit had been allowed to expire, it would mean a $1,432.50 tax increase for a single working mom of two in Michigan who is earning minimum wage.  Under the deal, that family will receive a credit of $1,770 (rather than $337.50). That’s a critical boost for those families struggling to make it. That’s also money that is most likely to be spent and spent quickly, giving a needed jolt to the local economy.

The policy group Citizens for Tax Justice (CTJ) estimates that extending the Child Tax Credit expansions will help families of 514,000 children in Michigan.

Likewise, expansions in the Earned Income Tax Credit will help families of a half-million children in Michigan, CTJ estimates. Those changes provided a larger credit for families with three or more children ($629 more than families with two children). The Recovery Act also addressed a “marriage penalty” and allowed a married couple to claim the EITC with incomes $5,000 higher than single taxpayers, rather than $3,000.

In addition, the deal extends tax credits offering help for families struggling to cover the costs of higher education. Of course, there’s also a vital part of the compromise that is extremely important to Michigan and that is the extension through 2011 for emergency unemployment benefits.

With tens of thousands in Michigan losing their benefits each month, it’s important to our state to get that income restored for families as breadwinners look for jobs in a very tough market.

December 17th, 2010 Posted to Blog: Factually Speaking,Federal Stimulus,Tax Policy | Comments (1)

A recently released survey of local Michigan officials has a depressing finding: Only 1 percent of local officials think the American Recovery and Reinvestment Act has helped improve local economic conditions “very much.” Two out of every three say it has not helped at all to date, and more than half predict it won’t help at all over the long term.

Ouch! That’s a blow for those of us who have been advocating for extending vital features of the ARRA. (Those include extending the enhanced federal Medicaid match that will offer more than $500 million for next year’s state budget, Earned Income Tax Credit expansions, Child Tax Credit to benefit working poor families of nearly 600,000 kids in Michigan and 99 weeks of unemployment benefits for the state’s long-term unemployed.)

ARRA has poured critical dollars into our state at a critical time. Few of those dollars, however, went directly to local governments, a fact pointed out by the Michigan Municipal League in a well-publicized letter to Vice President Biden last year. Local governments struggle with the double whammy of sharply reduced revenue sharing from the state and declining property values, causing layoffs of public safety workers and other hardships.

But the Recovery Act money has flowed to many people in the communities: the unemployed, households on food assistance, those on Social Security and taxpayers. It is credited with saving an estimated 12,000 jobs in Michigan, most of them in education.  That help doesn’t go into a black hole — those are dollars that are quickly circulated in local economies.

The survey of more than 1,000 local officials was completed last fall. Perhaps, with time, more will see the benefit to their communities in projects such as weatherization.

Without doubt, the ARRA has paid off for local communities, even as tough times continue. What’s hard to imagine is how much worse it would be without the Recovery Act.

Michigan needed the Recovery Act in 2009. It needs it now – it’s important that Congress votes to extend the enhanced Medicaid match, EITC expansions, unemployment benefits and the Child Tax credit.

– Judy Putnam