The case for a 60 percent EITC
A year and half ago the Michigan Future Board proposed that the state expand its Earned Income Tax Credit tenfold. Going from a 6 percent match of the federal credit to 60 percent. This is at a time, when despite unprecedented federal funding and a multi billion dollar state budget surplus, expanding the EITC was on no one’s agenda.
The rationale for this transformational recommendation was our belief that Michigan needed a completely new approach to improving the economic well being of working families. That far too many struggling working families was an ongoing reality of the Michigan economy. And that what these working families needed most was income, not programs.
Michigan has a two-tier economy. Nearly six in ten Michigan jobs pay less than what is required for a family of three to be middle class ($47,000). This two-tier economy is prevalent across all of Michigan and across all races and ethnicities. This two-tier economy is structural. A reality when the Michigan economy is expanding as well as when it is contracting. A reality when unemployment is low as well as when it is high. A reality when the stock market is booming as well as when it is collapsing.
This is the prime economic challenge of our times: having an economy that provides family-sustaining jobs––not just any job––so that all working Michigan households can raise a family and pass on a better opportunity to their children.
The pandemic made clear that low-wage workers live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leave them struggling to pay for the necessities. The reality is that most of those struggling economically, in good times and bad, are hard-working Michiganders who, like us, get up every day and work hard to earn a living.
What these lower-wage workers need most is income, not programs. In our just completed election candidates from both parties campaigned on helping working Michigan families deal with high inflation. Candidates understood Michiganders need help now paying for necessities like food and gas and, this winter, heating bills.
A big expansion of the state’s Earned Income Tax Credit is by far the best way to help working families pay the bills. Expanding Michigan’s EITC to 60 percent provides more than 700,000 working households raising nearly one million children an extra one billion dollars annually to pay the bills. An average of an extra $1,350 a year for each household.
Spending state funds on a big working families tax credit has huge advantages over increasing funding for programs First and foremost it allows families to make decision over what the tax cuts will be used to pay. Despite widespread fears from elected officials in both parties, the reality is that EITC recipients overwhelming use their tax credit to pay for necessities, repair homes, maintain vehicles that are needed to commute to work, and in some cases, obtain additional education or training to boost their employability and earning power.
A working family tax credit is also far easier to apply for and receive than other income-based programs. Maybe most important a working family tax cut will help far more families than any program can.
A 60 percent state match of the federal credit should be the cornerstone of a transformation in how the state supports working families. Moving away from a program-based support system for working families to a no red tape cash-based safety net that provides working families with increased income and benefits to pay the bills and save for emergencies, retirement and the kids’ education.