A year ago, in their zeal to give businesses an enormous tax cut, the governor and the legislature considered virtually eliminating the Earned Income Tax Credit for the working poor. In the end, they didn’t quite kill it. Instead, they merely took most of it away.
When they did, there was hardly a whimper of protest from the Democrats. About the only group which seemed upset was the non-profit and non-partisan Michigan League for Human Services.
Even the league seemed more relieved that the tax credit wasn’t totally killed than indignant about what the government had done. When the Michigan Senate decided to “only” take 70 percent of the credit away, they were praised by a former senator, Gilda Jacobs, who is now president of the league.
“This measure preserves the spirit of the Michigan Earned Income Tax Credit,” she said. Well, I have long thought that Gilda was one of the brightest lights in Lansing.
But I thought then that she was being far too easy on what to me was really a public policy crime. Shrinking the credit, known at the EITC, is about as stupid a move as I can imagine.
In fact, it is even stupider seen from a conservative orientation. The credit encouraged the poor to work and helped keep working families out of poverty. It put desperately needed money into their hands. But it also put even more money into the hands of Michigan businessmen, especially small businessmen.
When you make it possible for the working poor to keep more of their earnings, they spend it almost immediately in the local economy. They do not park the money in the Cayman Islands. They buy stuff with it. When money is spent that way, it has what economists call a multiplier effect. According to the Anderson Economic Group, every dollar returned to the working poor generates $1.67 worth of activity.
You couldn’t imagine a more effective device to keep working people out of poverty. Well, now it is a new era, and yesterday, the League for Human Services released a study detailing the effect of the reduced tax credit. What it shows is that Michigan’s leaders have indeed robbed from the poor to give to the rich. Three years ago, the EITC reduced taxes for working, low-income families by $344 million. This year, that will drop to $109 million. What this means is that Michigan’s poorest working families are being saddled with a tax increase of almost a quarter of a billion dollars.
“Low-income families pay a larger share of their income already in sales and property taxes than do the wealthy,” Jacobs said. Now, they will have even less money in their pockets.
While this will certainly hurt impoverished Detroit, Gilda Jacobs thinks it may hit rural northern Michigan especially hard. “Cutting the EITC may well put out of business some independent grocers, small auto repair shops and second-hand stores,” she said.
Wouldn’t it be something if the governor and our legislative leaders would be statesmen enough to admit that on this issue, they were wrong? Wouldn’t it restore your faith in government and human nature if they were to restore the tax credit?
It certainly would mine. But don’t hold your breath.
Jack Lessenberry is Michigan Radio’s Political Analyst. Views expressed in the essays by Jack Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.