Supporting Working Families and Local Economies by Expanding Michigan’s Earned Income Tax Credit
Over my 20 year United Way career, I’ve been fortunate enough to serve a range of communities – from small towns to big cities - and while every community has had its own set of unique strengths and challenges, one thing that remains ever present is that working families, and their communities, need a range of supports in order to thrive.
As we emerge from the COVID-19 pandemic, families across Michigan need support now more than ever before. We know that before COVID-19, 38% of Michigan households struggled to make ends meet and now is the time to support a proven tool that positively impacts Michigan’s working families, businesses, and communities.
That’s why an expansion of the Earned Income Tax Credit (EITC) is one of MAUW’s top five public policy priorities this year.
What is the EITC?
The Earned Income Tax Credit is a tax credit for workers and families with low incomes to help them meet basic spending needs. A family of four needs to make $32.06 per hour, just to make ends meet. However, 58% of jobs in Michigan pay less than $20 per hour. Designed to boost the earning of low-wage workers and offset some of the taxes they pay, the EITC is a step to help struggling families work toward economic security.
How does the EITC work?
The amount of EITC depends on an individual’s income, marital status, and number of dependents. The credit begins with the first dollar of income earned and continues to increase alongside the earned income, until a maximum is reached, which then begins to phase out at a higher income level.
Who does EITC help?
The EITC helps working families. The research shows that families mostly use EITC to pay for necessities – including home repairs and to maintain vehicles to commute to work. Further, the improved financial stability the EITC brings to families has long-term benefits such as improved infant and maternal health, school success, college enrollment, and increased work earnings as children grow into adults.
Equally as important, the EITC has a proven benefit to local economies. The EITC incentivizes work, helping employers fill much-needed positions in a post-COVID economy. It also increases a family’s purchasing power. In fact, every dollar from the EITC results in $1.50 to $2 in local economic activity – the bigger the credit, the more money will be spent locally. The Michigan Department of Treasury estimates that a return to the pre-2011 20% supplemental credit would mean an additional $258M in local economic activity, while an expansion to 30% would generate an additional $442.3M in local economic activity.
Why is the EITC important?
Expanding the EITC offers an opportunity to significantly increase the economic wellbeing of Michiganders, including the hardworking ALICE (Asset Limited, Income Constrained, Employed) families who are employed, but who struggle with everyday necessities like housing, food, transportation, or childcare – just to name a few.
The Earned Income Tax Credit has proven to be one of the most effective pro-work, pro-family, poverty-fighting tools in our country. We want to help create a post-pandemic market economy that will benefit all families. Proven to positively impact Michigan’s working families, businesses, and communities, the EITC helps lift families out of poverty and generates reinvestment in local economies.
Our Position
The State of Michigan supplements the federal credit with its own state credit, but it’s one of the weakest state EITC’s nationwide at only 6% of the federal credit. We are advocating for an increase to this supplemental credit.
Currently, eligible working Michigan families receive an average of $150 with the current EITC. If levels are restored to their pre-2011 rate of 20%, that average would increase to $499 per family. If we expand the credit further to 30%, the average would increase to $749. That means more dollars that help take families towards self-sufficiency, a bigger boost to small businesses and local economies, and greater lift to local communities - and 12 major Chambers of Commerce across the state agree.
Join us in our mission to help our families and communities across the state of Michigan – reach out to your Local United Way today to learn more about how to advocate for an increase to the Michigan EITC in your community.
- Mike