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Jack Lessenberry

Jack Lessenberry

A Question of Fairness

May 18, 2012

LANSING, Mich. – If you had to sum up the Republican Party’s creed in a sentence, it might well be: Raising taxes is a bad idea, no matter what. After all, the GOP’s rising “Tea Party” faction’s name began as an acronym: Taxed Enough Already.

So how do you suppose Republicans would react if someone proposed slapping a massive tax increase on the working poor, one that was certain to hurt small businesses as well?

In Michigan, the answer is clear, even if it‘s not what logic might lead you to expect. Hitting the working poor with a huge tax increase is exactly what the GOP-led state government did last year.

And the results are beginning to show. Last year, a heavily Republican legislature reduced the Earned Income Tax Credit, usually known as the EITC, from 20 percent of the federal amount to just six percent. That has meant an effective tax increase of an estimated $244 million on Michigan’s poorest working families.

Gilda Jacobs is president of the non-partisan Michigan League for Human Services, which calculated that figure. She said, “That’s money that would otherwise have gone to small businesses across the state that serve the needs of working families.”

Particularly hardest hit, she said, are inner cities, but also rural Michigan communities. That’s because when the working poor do get a little extra money, they don’t sock it away in banks in the Cayman Islands. They tend to spend it almost immediately in the local economy. That produces a pro-growth multiplier effect.

In fact, the generally conservative Anderson Economic Group calculated that every dollar returned to the working poor actually generates $1.67 worth of economic activity.

That not only helps keep the working poor from falling into poverty, it helps the small businesses who service them.

Jacobs, a former Democratic state senator from the Detroit suburbs, agreed that impoverished Detroit is being hard hit by the fact that the working poor now keep less of their income.

But the century-old League for Human Services thinks the biggest impact might be felt upstate, where there is not a lot of affluence outside of resort towns like Petoskey and Harbor Springs.

“Many lawmakers don’t realize the impact the EITC has on rural regions of our state, particularly in northern Michigan, which have high levels of poverty,” Jacobs said.

She fears that the cuts to the tax credit “may well put out of business some small businesses such as independent grocers, small auto repair shots and second-hand stores that cater to low-income working families in rural communities.”

The situation could have been worse. Last year, there was some discussion about actually doing away entirely with the EITC. Gov. Rick Snyder came into office saying everyone should be treated the same under the tax code, and vowed to do away with special deals, like the massive tax breaks given to the film industry.

However, despite massive cuts, the EITC survived. Democrats who were fighting to save it last year often irritated Republicans by quoting a famous politician who drastically expanded the federal EITC while he was President of the United States.

“The Earned Income Tax Credit is the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” said that president, who was not, as some might have guessed, Lyndon Johnson or Franklin D. Roosevelt.

It was Ronald Reagan.

Three months ago, State Rep. Phil Cavanagh (D-Redford Township) introduced a bill to fully restore the Earned Income Tax Credit, arguing that it was clear how much it was needed.

But it appears to have no chance of going anywhere. Democrats are heavily outnumbered in the legislature, and major bills they introduce tend to be merely ignored.

The governor and his GOP allies seem to feel that the key to regaining prosperity for Michigan lies almost entirely in tax breaks designed to lure more business to the state.

That doesn’t make sense to Gilda Jacobs. When asked whether cutting the amount of disposable income the working poor get to keep was apt to topple more families into poverty, she said “absolutely.”

“This has as much of an economic impact as there is in giving tax credits to business,” she said of the tax credit program.

“Low-income families pay a larger share of their income already in sales and property taxes than the wealthy,” she argued.

Not only does is make more economic sense to let them keep more of their income, there is, she feels, a question of fairness.

There’s no sign, however, that the majority Republicans agree.

***

How much can you make and still qualify for the Michigan Earned Income Tax Credit? According to a state website, for tax year 2011, the maximum for families with one child was $36,051. That rises, depending on circumstances, to a maximum of $49,077 for married workers who file jointly and have at least three children.

Veteran journalist and national Emmy Award winner Jack Lessenberry teaches at Wayne State University, serves as Michigan Radio’s senior political analyst and writes regularly for several publications. He also serves as The Toledo Blade’s writing coach and ombudsman and is host of the weekly television show Deadline Now on WGTE-TV in Toledo.

May 17, 2012 · Filed under Jack Lessenberry Tags: , ,

17 responses so far ↓

  • 1 Anagnorisis // May 18, 2012 at 8:50 am

    This analysis certainly aligns with the general perception of Republicans. Although Rick Snyder came into office with some admiration behind him for the inverse of “politics as usual”, the result is conservative retrogression. Business sense doesn’t work in politics for the simple reason that business relies on sales; politics relies on taxation and campaign dollars. There’s no money to be gained from serfdom but minimal taxation, so forget ‘em. It’s industry and commerce that pay for campaigns and budgets. The Democratic stance is broadly humanitarian whereas the Republican mantra is profit and low taxes – for them.

  • 2 Grace // May 18, 2012 at 11:00 am

    Interesting that Gov. Snyder didn’t take his salary last year, but will be taking the full salary this year. NO reduction in the salary like every other state employee has had to endure this year, particularly legislative staff. Guess we still have one law for the RICH and another for the poor.

  • 3 A Question of Fairness | Michigan League for Human Services // May 18, 2012 at 3:08 pm

    [...] “Tea Party” faction’s name began as an acronym: Taxed Enough Already. May 18, 2012 — DOME May 18th, 2012 Posted to In The News | Comments [...]

  • 4 Bob Balwinski // May 19, 2012 at 11:40 am

    The law of supply and demand is immutable. Take away money from folks, especially low income folks, and they have less to spend which diminishes demand for goods and services. This actually could lead to lay-offs.
    The TEA Party……..even I contacted them wondering when their protests would start. I had no response on this issue from them leading me to believe they only oppose tax increases by Democrats and gladly accept tax increases by Republicans……don’t really know for sure as the TEA Party has been silent on this since Oct 1st of 2011 when the scheduled drop in MI Income Tax rate did not occur, the first of the tax increases to occur.

  • 5 Nightreader // May 25, 2012 at 10:59 pm

    1) Jacobs’ claim, “that’s money that would otherwise have gone to small businesses across the state,” is based on . . . what? I would think that those who are trying to stretch their money would buy their groceries at places like WalMart and Meijer. Perhaps she is thinking of the convenience stores where many buy their lottery tickets.

    2) The Earned Income Tax Credit is horribly misnamed. Those who receive the EITC are receiving unearned money from the government (i.e. taxpayers). Income is earned by working and/or investing; the EITC is a redistribution in which the income that OTHERS have earned is taxed and given away to recipients. Thus this year’s reduction in Michigan’s EITC means that those who really did earn income should (in a free society, at least) be able to keep more of their own property.

    3) The EITC, like all government entitlement programs, is rife with abuse. According to the U.S. General Accounting Office (itself a squanderer of taxpayer dollars), between one-quarter to one-third of all EITC claims are ‘improperly paid.’

    4) Michigan’s EITC is in addition to the federal Earned Income Tax Credit which, like most federal entitlement programs, will never go away unless our nation’s leadership regains its sensibility at some point.

    5) Jacobs was quoted in February as saying, “Eliminating this credit amounts to a tax increase on our most vulnerable families.” This is such a ridiculous and false view. It is tantamount to asserting that, if the government has given you $2,000 of other people’s money each year for the past five years, and in year six gives you $1,000 of other people’s money, that you have just suffered a tax increase. Incredible.

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