A small investment that makes a big difference: Coalition calls for restoration of EITC funding
LANSING, Mich. – Citing its proven effectiveness in helping working families and the communities they live in, a broad coalition of social justice advocates, religious groups and organizations working to combat poverty today called on the Michigan Legislature to reinstate funding for the state Earned Income Tax Credit (EITC), which was slashed from 20 percent of the federal credit to 6 percent in 2011.
The average eligible family saw its taxes increase by more than $300 with the reduction of the state EITC.
“Cutting the EITC was effectively a tax hike on our most vulnerable families,” said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “While our economy is on the rebound, good-paying jobs are still hard to come by. These families use the EITC to cover the most basic of needs: car repairs, medication co-pays, heating bills. Adding one percentage point back to the EITC would cost only $18 million — it’s a small investment that makes a big difference in people’s lives.”
Bills amending the tax code to reinstate the entire 20 percent credit were introduced by state Sen. Bert Johnson (D-Detroit) and state Rep. Phil Cavanagh (D-Redford Township).
“In Detroit and in urban areas across Michigan, small businesses are struggling just to get by as it is,” said Johnson. “EITC money tends to cover basic needs – needs that are generally provided by local businesses. EITC families aren’t putting their refunds into savings, or using it to take out-of-state vacations – they are pumping it directly back into their local economies.”
The slashing of the Michigan EITC is especially harmful to major urban areas like Detroit, the largest low-income city in the country. Johnson noted that the state EITC pumped over $62 million into Detroit in 2010. Reducing the state EITC from 20 percent to 6 percent drops that number to less than $19 million – or a reduction in purchasing power of nearly $44 million for Detroit residents.
“All around the state, working families are getting a big surprise when they have their taxes done and realize the EITC has been decimated,” said Cavanagh. “The EITC rewards work, and these families are doing everything they can to pull themselves up to create a better future for their children. I fought to protect the EITC when it was up on the chopping block, and I’m fighting now to restore it to appropriate levels.”
The EITC is the country’s most successful anti-poverty program for children, according to the Center for Budget and Policy Priorities. In Michigan, the state credit alone is responsible for keeping 14,000 children out of poverty.
It’s also an important tool for returning veterans, said State Rep. David Knezek (D-Dearborn Heights), who completed two tours in Iraq as a member of the U.S. Marine Corps.
“Many of our returning heroes are struggling to get a leg up in this challenging economy,” Knezek said. “The EITC helps working vets supplement their wages as they reintegrate themselves into the civilian workforce. It’s temporary support that helps them stay on their feet.”
Dr. Charles Ballard, a professor of economics at Michigan State University, stressed the importance of the EITC as an economic development tool.
“The EITC is not only vital in urban areas – it also pumps funds into rural communities,” said Ballard. “In fact, the four counties with the highest percentage of EITC-eligible families are Clare, Lake, Oscoda and Houghton — all in Northern Michigan.”