What is the EITC?
The Earned Income Tax Credit is a tax credit given to working families, who apply for it when they fill out state income tax forms. It is an effective anti-poverty tool that rewards work. It was created by legislation sponsored by Republican Sen. Nancy Cassis and went into effect in 2008. It helps a segment of the state’s population that has not benefited from special tax measures, like the credit for home mortgage insurance, tax credits to those who make political donations, the film tax credit, brownfield tax credits and other special treatments for individuals and businesses in Michigan.
Who benefits from the EITC?
Many of those who are eligible for the EITC live in rural Michigan, where incomes are low and poverty rates are high. In fact, the four counties with the highest percentage of people eligible for the EITC are Clare, Lake, Oscoda and Houghton, all in Northern Michigan. In the Thumb, rural Huron and Sanilac counties have 30 percent or more of their population under 200 percent of poverty (that’s about $44,000 a year or less for a family of four), along with other agricultural-oriented counties like Montcalm, Newaygo and Oceana. View map.
The slashing of the Michigan EITC is especially harmful to major urban areas like Detroit, the largest low-income city in the country. According to data from the Brookings Institute, 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.
Businesses are also major beneficiaries. EITC money is quickly recycled into the local economy as people make needed repairs on automobiles, catch up on rent and utility payments, buy clothes and purchase other necessities. That’s why a study by Anderson Economic Group says for every $1 provided by the EITC, the economy gets $1.67 as those dollars turn over locally.
Families and children
Of the 10 states with the highest poverty rates in the nation, nine have no state EITC or a meager EITC, like Michigan’s. Of the 10 states with the lowest poverty levels, eight have a state EITC larger than in Michigan — states like New Jersey, Minnesota and Virginia. Do we want to be more like Minnesota, a state with a high state EITC and low poverty rates, or a state like Mississippi, with no EITC and the nation’s highest poverty rate?
|State||Poverty rate||State EITC|
|New Mexico||18%||10% match|