Capital News Service

of the Michigan State University School of Journalism

With tight state budget, will working poor pay more?

By DAN SMALLWOOD
Capital News Service

LANSING — While House Republicans push to eliminate the Earned Income Tax Credit as a way to cut the state budget, defenders of the 3-year-old tax break say it benefits the economy.

The credit refunds some taxes for more than 780,000 low-income workers. In 2009, it cut $338 million from state revenues.

The Michigan League for Human Services, an advocacy group, argues that lawmakers should cut other tax credits instead.

The group has written to all lawmakers, letting them know how much their district economies would lose by eliminating the credit, said league communications director Judy Putnam.

Ramona Spencer of Lansing is one of many low-paid workers who claim the credit. She said losing it would significantly hurt her ability to take care of her disabled 26-year-old son and make ends meet.

“There’s been less support by the state when we need it most,” she said, citing cuts to many public services.

“Every dime counts and every little bit helps,” she said. “Having extra money helps balance things out.”

Sen. Bert Johnson, D-Highland Park, said he hasn’t seen a legitimate reason for removing the tax credit.

The government should protect eligible families in tough economic times, Johnson said. Effectively raising taxes on them is “not acceptable at this point.”

And Charles Anderson, president of the Detroit Urban League, said its elimination would “bring more pain to the people suffering most in our state.”

But Ari Adler, the press secretary for House Speaker James Bolger, R-Marshall, said the state must look at all tax exemptions and credits, including the earned income tax credit.

Adler said Republicans are examining how existing tax laws impact the state’s competitiveness.

No legislation to eliminate the credit has been introduced yet, he said.

Gov. Rick Snyder hasn’t announced his position on the issue.

According to the Treasury Department, the average credit was $432 in 2009.

The amount varies depending on taxpayers’ income and how many dependent children they have. There are separate credits: one for federal taxes and one at the state level.

The state credit, equal to 20 percent of the federal version, ranges from about $90 to a maximum of about $1,100.

Putnam, of the league, stressed the effectiveness of those dollars in the economy. She called it a “great benefit to small business.

“When people who are struggling to make ends meet, when they get money, they tend to spend it and spend quickly,” she said.

Spencer, the Lansing mother, said losing the credit could make some extra things unaffordable, like the annual vacation she takes to Lake Michigan.

“Things are already uncomfortably tight,” she said. “It’s tough enough.”

But Adler asked, “Can the people of Michigan afford to be as generous as we once were, given the current economy? We think the answer is no.”

The league cites a study by the Anderson Economic Group in East Lansing that said every dollar of the federal earned income tax credit generated $1.67 in economic activity.

As an alternative to cutting the credit, the league proposed extending the sales tax to services and shifting from a flat income tax to a graduated one.

Putnam said the state offers billions of dollars in existing tax credits, leaving plenty of places to cut other than the earned income credit.

Johnson, the Highland Park lawmaker, said the state couldn’t justifiably pay for many of Snyder’s proposals, including lowering business taxes, by raising taxes on the “most vulnerable citizens.”

“There’s not enough money in the budget to pay for what’s on the table,” he said. “I’m not looking just to tax and spend.”

Still, he said, “We shouldn’t balance budgets on the backs of working families.”

© 2011, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

 

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