August 3, 2015 — There is no doubt that the Earned Income Tax Credit is one of Michigan’s most effective two-generation program strategies. It is proven to not only help working parents, but lifts more children out of poverty than any other public program and it improves their health and education outcomes. Helping families, it also helps communities by stimulating local economies. A sound investment for sure, based on research and evidence.
Now, there is new research pointing to its heavy lifting for moving more people out of poverty in ways greater than previously thought. The research, reported by the Center for Budget for Policy Priorities, points to impressive results in increasing employment and reducing welfare use for single mothers. In one study of single mothers (ages 24-48) with children and no college degree, researches found the number of such families lifted out of poverty nearly doubled due to the impact of the EITC. Sounds like a strategy worthy of investment?
Despite its proven effectiveness, the state EITC is on the list of funding sources that could be redirected from helping children and families and toward fixing Michigan’s miserable roads. This was a bad idea when it was raised in the dog days of the previous state Legislature, then becoming a cornerstone of the May 5 Proposal 1 campaign which opposed cutting EITC to fix roads, and it’s a bad idea yet again.
While Michigan’s EITC isn’t as sizeable as it once was, it is certainly true that combined with the federal credit – which amounts to $6,242 for families with three or more children — it helps supplement low-wage earners and makes a real difference in many households.
Overall, there are 820,000 families with 1 million children who benefit from the state’s EITC and many are single parents. Working full-time at minimum wage, a single parent with two children receives a tax credit of about $300 annually. Again, it wouldn’t be viewed as a windfall to someone in the middle- and upper-income groups, but it can amount to a full paycheck for the working poor.
Several years ago, the state’s EITC was more substantial, but in 2011 the then-new Snyder administration cut the credit from 20 percent to 6 percent of the federal EITC rate, effectively raising $285 million in taxes from the state’s lowest wage earners. Today, the average Michigan EITC return amounts to $143. Despite the cut in the state rate, the current state EITC alone keeps 7,000 working families out of poverty and helps all receiving families with basic needs or debt repayment.
Able to keep more of their earnings, families who qualify tend to spend more of their income on basic necessities, such as housing, child care and transportation, spreading those funds among local businesses and services, thereby strengthening local economies, as well. For a married couple with two children and adjusted gross income of $16,300, they would receive a federal EITC of $5,372 and a state EITC of $322. A single parent with two children and an adjusted gross income of $30,000 would receive a federal EITC of $2,741 and a Michigan EITC of $164.
In this case, what’s good for local working families is good for communities and the state overall. So, how can you help?
- • Talk to your elected lawmakers and urge them to continue to invest in the Michigan EITC and help keep more dollars in the pockets of working families who need them most.
- • Employ the facts, using important data available about Michigan’s EITC and emerging research.
- • And use your own observations about your community and its residents in stating your case. Every community is different and you know best the struggles faced by families around you in making ends meet.
- • Most of all, remember that public policy decisions require public input. Local lawmakers rely on hearing from constituents like you to help make up their minds about decisions like the EITC.
— Teri Banas is a communications consultant working with Michigan’s Children.