By Bob Robinson
If some lawmakers have their way, millions will be ripped from the Michigan economy, and thousands of Michigan families will be financially devastated.
In a distressing attempt to boost state finances, some elected officials in our newly elected legislature plan to alleviate Michigan’s Earned Income Tax Credit (MEITC). One senator has even openly referred to the MEITC as a “welfare giveaway.” Nothing could be further from the truth. Getting elected with a “no tax – taxed enough already” campaign cry, then alleviating the MEITC for those in poverty amounts to nothing more than a sneaky and cheeky way to increase taxes. And, it would unfairly burden Michigan’s poor with our state’s budget failures.
Michigan’s Earned Income Credit (MEITC) is a refundable tax credit built upon the federal Earned Income Credit (EITC). Our state allows low-income taxpayers who receive the federal credit to claim 20% of it on their Michigan tax returns. The purpose of both credits has always been to reduce poverty. Reports have shown that more than 600,000 Michigan families have been “lifted out of poverty” as a result. Our lawmakers need to continue this important tax break.
Here’s why.
First, the EITC is not a “welfare” giveaway. It’s a “make work pay” tax break. That’s right, a tax break for people who otherwise earn so little, that the credit makes it worthwhile for them to take a job. Without it many of Michigan’s low-income citizens couldn’t afford to raise a family, own and maintain a vehicle for work transportation, shell out $3.10 a gallon for gas, and pay their taxes. Low-income Michigan families with three children received an average $490 MEITC refund in 2009, certainly not enough to alleviate their poverty. But, with the federal and state credits combined, they can remain productive citizens who stay off welfare. So, the reality is that the credit provides proven and effective work incentives for those in poverty. Most families use the credit to buy vehicles for work transportation. It’s clear that the MEITC encourages and increases gainful employment among Michigan’s poor.
Second, there is a huge economic benefit to the communities where refunds of the MEITC are spent. The Consumer Expenditure Survey found that low-income families spend more than 70% of their income on food, housing, and transportation. Most MEITC tax refunds are spent locally for rent, cars, groceries, heating, clothing, paying bills, needed home appliances, and other durables. This has a direct and immediate impact on the local economy, because low-income people usually spend their refund immediately. The money is then re-spent within the community (inside the taxpayer’s county), which provides even more economic benefit. In fact, each dollar of MEITC spent locally generates $1.67 in economic activity. That’s a whopping 67% return on the investment. Low-income taxpayers are not wasting the money either, because on average they spend less than $1,300 per year on entertainment and personal care.
According to independent research, the EITC and MEITC combined have over $15 million in annual economic impact where I live, in Eaton County alone. Alleviating this all-important tax break would tear millions out of our state’s economy, and do so at a time when our poor families and business communities can least afford it in these tough economic times.
What could be more effective in dealing with our state’s economic problems than giving poor folks a tax break, and putting money into the hands of minimum wage families that need it most, especially when they spend the money locally? The MEITC generates positive results that we cannot afford to lose, and assures economic justice for our low-income citizens, alleviating it as a way to fund government cheats needy Michigan families and would have disastrous results on our local economies.
For more information about the Michigan Earned Income Tax Credit, go to www.michiganeic.org.
