EITC expansion would keep workers out of poverty

President Obama’s 2015 budget rightly seeks to expand the Earned Income Tax Credit to more workers — particularly childless workers. The current EITC rules are unfair to low-wage workers who aren’t raising children, including noncustodial parents. Those workers receive such a small EITC that they can be literally taxed into poverty, or driven deeper into poverty.

By far, the largest share of the EITC goes to those in poverty who work and have children. The EITC is a refundable credit for low-income working families and has been successful at encouraging certain people to take jobs, particularly single mothers. The EITC promotes work and reduces the need for public assistance.

The EITC expansion seeks to incentivize work for three groups whose participation rate in the labor force has declined steadily over the last decade: minority men without a college education, single women working low-wage jobs, and workers with disabilities.

A Michigan minimum wage childless worker employed full time earns around $15,000. That’s 133% of the federal poverty level and, according to Making Ends Meet in Michigan$6,500 short of the amount required for a single childless worker to meet their most essential needs like housing and transportation.

Under current EITC rules, this worker would be ineligible for the EITC, because they made too much money. Under the president’s proposal they would qualify for an EITC of $470, serving to offset a low-wage income and help with expenses such as car repairs needed to remain in the work force.

The president’s proposal would double the maximum credit for childless workers to about $1,000, increase the income levels at which the EITC phases out to about $18,070 for single childless workers, and $23,570 for childless married taxpayers filing jointly, and make the credit available to workers beginning at age 21 as opposed to age 25, nearly doubling the total number of childless workers receiving the EITC.

The most common occupations among those who would benefit from the proposed expansion of the EITC are low-wage retail and food service workers, three quarters of whom live in households with incomes below 150% of the poverty line. And 470,000 childless workers in Michigan would benefit directly from President Obama’s planned expansion of the EITC.

– Jason Escareno

 

Not a pie-in-the-sky idea

From the League’s First Tuesday newsletter
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  • Life is a bowl of cherries.
  • It’s the pits.
  • That’s a pie-in-the sky idea.

My staff and I have been making a lot of cherry puns over the last week. But it’s all for a serious reason.

We used a cherry pie to show what 20% of Michigan families earning the least would get if we roll back the Michigan personal income tax from 4.25% to 3.9%. Yep, that’s just $12 – enough to buy a cherry pie from the bakery.

For those right in the middle, it would be $88 (that’s about $1.70 a week). What will that get you? Perhaps a used dough mixer.

But the top 1% — who would get a full 17% of the benefits from a rollback — would receive, on average, $2,618. That will buy you a trip for two to Paris, where you can see all the sights and enjoy French pastry at a café.

Along with a bite-sized analysis, the League sent a slice of cherry pie to each lawmaker to serve up an important message: An income tax rollback is a sweet deal for those at the very top but the pits for the rest as it would take away the best opportunity in a decade to reinvest in education, safe communities, roads and the other engines of our economy that were neglected as Michigan struggled with a long economic downturn.

The League is fortunate to have access to an analysis using a sophisticated tax model created by the Washington, D.C.-based Institute on Taxation and Economic Policy.

That allows us to show the potential impact in a very tangible way. And what it clearly reveals is that the proposed income tax rollback plans are bad for Michigan.

Gov. Rick Snyder’s plan to instead pump up the Homestead Property Tax Credit is a far better alternative and will especially help seniors and those with disabilities. Even better, would be to include an increase in the Earned Income Tax Credit for low-income working families or to forgo the tax reductions and instead use the resources to invest in education that has been so severely cut since the Great Recession began.

In fact, a new poll of 600 Michigan residents shows that most agree. They prefer paying for education or road repair over an income tax cut.

Another study by the Economic Policy Institute examines who has benefited from the post-recession recovery. From 2007 to 2009, more than 90% of the economic growth has gone to the top 1% in Michigan, further deepening income inequality.

Those at the top have benefited the most from the economic recovery, and they will benefit the most from the tax rollback.

Please tell your lawmakers to vote NO on rolling back the income tax.

It’s a far sweeter deal to invest in education and other services that will rev up our economy or directly target tax reductions to those who continue to struggle with low wages.

Those would truly be plans deserving of a cherry on the top.

– Gilda Z. Jacobs
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EITC is perfect vehicle for the governor

From the League’s First Tuesday newsletter
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Gov. Rick Snyder unveils his fourth executive budget Wednesday and worthy of applause is the fact that he has rejected the across-the-board rollback of Michigan’s personal income tax.

The governor indicated in his State of the State address last month that he wants a tax cut but one that is targeted to working families — those “hardworking Michiganders who get up every day and pack their lunch and go to work.”

The good news is that there is a vehicle already in place to deliver exactly what the governor is seeking: the Michigan Earned Income Tax Credit. As a new fact sheet from the League shows, the tax credit is one of Michigan’s most effective tools for supporting working families and reducing poverty.

Using the $100 million the Snyder administration has targeted for tax relief to increase the EITC would help the very workers the governor wants to help, and it would boost the economy. That could lift the EITC from 6% of the federal credit to 11% of the federal credit. For a working mom with four growing boys, like Paula Fekken of Traverse City, that would mean $300 more for car repairs and other necessities to keep her on the job.

A new report by the Center on Budget and Policy Priorities documents the benefits from state EITCs: They keep working parents on the job and children out of poverty.

Unfortunately, the income tax rollback is gathering steam in the Legislature with a Senate hearing. The tax cut fever is driven by higher-than-expected revenues, nearly $1 billion over three years. It’s a strong election-year temptation as GOP lawmakers look to defend their records for the damage done to working families and seniors in the Big Tax Shift of 2011.

Yet, as the League testified at the Senate hearing last month the income tax rollback disproportionately benefits upper-income households and threatens Michigan’s fragile recovery. In fact, $3 of every $5 would go to those in the top 20% of income.

Increasing the EITC or spending the higher-than-expected revenue to begin restoring Great Recession cuts to education and other key services would also be better economy-boosting routes than the across-the-board income tax cuts.

Either choice would help the governor reward hard-working folks in Michigan.

– Gilda Z. Jacobs

EITC Awareness Day

Since the IRS has declared today to be Earned Income Tax Credit Awareness Day, it seems like a good time to let people know about several EITC promotional resources and one policy issue.

First, the Michigan League for Public Policy has posted its 2014 edition of Money Back in Michigan, a packet describing each of the federal and state tax credits available to low-income households in Michigan.  If you work at an organization that serves such populations and you want to be sure they receive the tax credits for which they qualify, you may find this helpful. It includes brochures that can be posted on the wall of your health center, food pantry or social service agency. (more…)

Rolling back progress

The Senate Finance Committee Wednesday approved a bill to reduce the state’s personal income tax rate from 4.25% to 3.9% by 2017, a move that would reduce state revenues by up to $874 million when fully implemented in Fiscal Year 2018.

While the purely political appeal of a tax cut during an election season is obvious, the League testified, based on a recently released report, that the risks to Michigan’s economy far outweigh any benefits. Low- and moderate-income workers will see little in return while the wealthiest taxpayers would benefit the most. (more…)

Early reading critical

Michigan is losing ground on a key benchmark in its long-term goal of expanding its educated workforce. The state is among only six that showed no improvement in reading proficiency among fourth-graders over the decade between 2003 and 2013, according to a just released Data Snapshot from the Annie E. Casey Foundation.

Almost seven of every 10 Michigan fourth-graders did not demonstrate reading proficiency in 2013—up 1 percentage point from 2003 while the national average dropped by 4 percentage points, according to the review of national test results across the states. Just over half (53%) of all fourth-graders in the best state, Massachusetts, scored below proficient in reading compared with almost four of five Mississippi fourth-graders. (more…)

The kids are not all right

Whatever economic recovery has occurred in Michigan, it has not reached children and their families. Poverty continues to affect one of every four of the state’s youngsters. Over half a million of the children in Michigan lived in families with income below the federal poverty level ($18,000 for a single parent family of 3 and $22,000 for a family of four), according to this year’s annual Kids Count in Michigan overview of child well-being.

Economic security weakened in almost every county between 2005 and 2011, and the more affluent counties experienced the steepest increases: Oakland, Ottawa and Macomb counties saw their child poverty rates almost double over the trend period. (more…)

Walking the walk with infant mortality

Factors that may drive Michigan’s tragically high infant mortality rate include stress, unemployment, poverty and neighborhood safety in addition to what might be thought of as the more traditional reasons, such as lack of healthcare or poor safe sleep practices, according to a new report from the Michigan Department of Community Health. The report takes a broad look at why Michigan’s rate is so high and in particular why an African American infant in Michigan is 2.6 more times likely to die before reaching the child’s first birthday than a white infant. (more…)

Ten steps to boost Michigan’s economy

new report by the League outlines 10 steps Michigan must take to improve its economy, refuting the myth that tax cuts are a shortcut to economic prosperity. Included in the report are strategies for investing in the services and infrastructure needed to create jobs and fuel economic growth, as well as tax changes that modernize and strengthen the state’s revenue system.

It is an agenda for long-term economic prosperity that includes investments in education from early childhood through higher education, access to the health and mental health services needed for a healthy workforce, basic income security for those who cannot work or find jobs, and support for the community services businesses and consumers rely on. (more…)

Moving in the wrong direction

The latest U.S. Census Bureau data confirms what we all suspected. While there have been improvements in the economy, it has not been enough to float all boats, and state poverty rates, especially for children, remain 25% to 30% above pre-recession levels.

Certainly there have been cuts in state and local services in Michigan that affected low-income families with children, thwarting their opportunities to share in the American dream by earning enough through hard work to move into the middle class. Deep cuts in basic income assistance have forced more children into extreme poverty, exposing them to homelessness and hunger, and creating barriers to academic success. A failure to invest in child care for low-income families has resulted in fewer parents having the care they need to secure and retain jobs that support their children. (more…)

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