Small Business Association of Michigan (SBAM) President and CEO Brian Calley in an interview with the Michigan Association of United Ways made the case for why a big expansion of the state’s Earned Income Tax Credit (EITC) is good for Michigan businesses. You can watch the relevant portion of the interview here. Highly recommended.
At the core of Calley’s case is the statement in the photo above. That the EITC is pro work, both an incentive to work and a reward for work. In a time of employers having difficulties finding enough workers, particularly low-wage workers, state policy should provide incentives to work.
SBAM is one of many business organizations supporting an EITC expansion. Including 13 local chambers of commerce, the Michigan Manufacturers Association and the Michigan Restaurant and Lodging Association.
A key reason for this widespread business support, as we explored previously, is the EITC is explicitly designed to encourage greater participation in the workforce. The EITC is available only to families that work. The credit is designed to encourage individuals to enter the labor market.
The EITC has a proven track record of pulling people into the workforce. In a comprehensive 2020 study on the employment effects of the EITC Diane Whitmore Schanzenbach and Michael R. Strain found:
The Earned Income Tax Credit (EITC) is the cornerstone anti-poverty policy in the United States. Designed to fight poverty by encouraging and rewarding work, decades of research on the EITC has found that the program meets its goals by increasing employment among targeted women, and by successfully raising their annual incomes, lifting millions of families out of poverty. This paper confirms and extends that consensus.
EITC Basics
The EITC is a refundable Federal tax credit (meaning you receive a refund even after your tax liability reaches zero) established over 40 years ago with support by both Democrats and Republicans. A taxpayer must work to be eligible. The amount of credit depends on family income and number of dependent children. The maximum federal credit is approximately $6,800, but averages around $2,500.
Michigan, like 29 other States, provides a State income tax credit tied directly to the requirements of the Federal credit. First established in 2006, Michigan’s EITC has ranged from 20% of the Federal credit (through most of its history), to 6% today. Michigan’s EITC provides cash, not a new State program, to Michigan’s working families. Very little bureaucracy is required, meaning more of the State’s dollars end up supporting families. In 2019, over 730,000 Michigan households with more than four in ten Michigan children received the State EITC.
