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Home / News & Publications / Michigan Catholic News / 2008 / Church fights to keep tax credit for poor

by Joe Kohn of The Michigan Catholic
Published February 1, 2008

Photo Courtesy of the Michigan Catholic Conference The Michigan Catholic Conference holds a press conference in the Capitol Rotunda in Lansing. The Church is urging lawmakers to come through with tax credits to the working poor.

Detroit — The Church in Michigan last week asserted that a new tax credit for low-income families must be enacted as planned by state government.

Michigan's Earned Income Tax Credit — or EITC — was passed in September 2006 and takes effect this year. It compliments a federal EITC, which is designed to allow low-income wage earners to keep more of what they earn rather than having it given to the government in the form of payroll taxes.

The idea is to allow those in entry-level jobs to live more easily while trying to move up the economic ladder and provide for their families.

About 600,000 families in Michigan will qualify for the tax credit.

Because of the poor local economy, some lawmakers have suggested the tax credit be put on hold until the state has a healthier rainy day fund. A bill was even drafted by Sen. Nancy Cassis, R-Novi, last year, though it has yet to be placed before the state Senate.

The Michigan Catholic Conference, which serves as the Church's voice in the state political arena, asserts that the tax credit is too important for the working poor to be put on the backburner.

"Such action would amount to nothing more than a tax increase on those working families who are struggling to climb above the poverty line in Michigan," said Paul Long, MCC vice president for public policy, in a statement last week.

In 2006, legislation to enact the state EITC passed the Michigan Senate 38-0 and the House of Representatives 103-3. But lawmakers who are now trying to delay the tax credit say it would cost the state as much as $130 million in the 2009 fiscal year.

The Lansing-based Anderson Economic Group, however, says that estimate is far too high, and that the actual cost would be around $40 million. The Anderson Economic Group was commissioned by backers of the EITC, and has done studies regarding the tax credit since years before it was brought to the Michigan legislature.

Patrick Anderson, president and CEO of the Anderson Economic Group, pointed out that opponents of enacting the EITC fail to take into account the tax credit's purpose — to bolster low-income families. Once low-income wage earners are able to keep more of what they make, they are more likely to earn higher-paying jobs and thus contribute more tax dollars to the state. Also, the tax credit will allow low-income wage earners to lower their dependency on assistance from state agencies.

"Our estimate of the net cost of the Michigan EITC shows that the state will recover over half the cost for credits through higher tax collections and lower social assistance payments due to the new wages earned by Michigan residents who enter the workforce due to the EITC," Anderson said.

The federal EITC was created in 1975 to reduce or eliminate payroll taxes on the employee's end.

Without it, low-income wage earners suffer. For example, a worker could be allocated $20,000 by a company — but between the time it leaves the employer's hand and reaches the employee, it will have been taxed $4,800. A large percentage of that tax would come from payroll taxes, paid by both the employer and employee.

Such a high percentage of taxes on a small income is what caused the federal government to pass an EITC. Michigan's EITC, if enacted as planned, essentially will tack on 10 percent to the federal tax credit in 2008, and 20 percent in and after 2009. It can put as much as $1,000 back into the pockets of low-income families.