Bigger tax credit would help working-poor families buy basics
Editor’s Note: This article originally appeared in The Lakeshore.
SHANDRA MARTINEZ | TUESDAY, MARCH 1, 2022
Nearly two in five Michigan residents struggle to afford basic necessities such as housing, child care, food, health care, and transportation.
These families – who account for 1.5 million, or 38%, of Michigan households – would benefit from a plan to increase Michigan’s Earned Income Tax Credit, or EITC, say a group of nonprofit organizations.
“We know that the Earned Income Tax Credit encourages work and helps families pay for necessities that keep them working, like home repairs and vehicle maintenance,” says Mike Larson, president and CEO of Michigan Association of United Ways. “The time is now to support a proven tool to positively impact Michigan’s working families, businesses, and communities,”
MAUW, which represents 40 United Way organizations across the state, is among several groups, including the Michigan Catholic Conference and the Michigan League for Public Policy, supporting Gov. Gretchen Whitmer’s plan to boost the EITC to its 2011 level of 20%. It currently provides more than 730,000 low- to moderate-income working families an extra break on their taxes.
“This is important to help working families,” Larson says. “The data tells the story. This isn't a Democratic or Republican issue; this is an issue that impacts us all. We want to provide whatever lift we can, because these people working their jobs are important to our economy.”
Falling farther behind
Data that paints a dire picture of the state’s growing ranks of working poor families comes from the ALICE Project. ALICE is short for Asset Limited, Income Constrained, Employed.
The 2021 release of the fourth ALICE report found that low wages, reduced work hours, and depleted savings, combined with the increased cost of living, made for an uneven economic recovery in Michigan following the 2008 recession.
The report says the number of ALICE households increased from 19% in 2007 to 25% in 2019. One reason is that the cost of household essentials increased faster than the cost of other goods and services – 3.4% annually, while the rate of inflation was 1.8%.
Just to afford the basics, single adults now need an annual salary of just over $23,400, while a family of four needs an annual salary of more than $64,100. These bare-minimum budgets are still significantly higher than the 2019 federal poverty level of $12,490 for a single adult and $25,750 for a family of four.
“We are now trying to understand how the pandemic impacts the ALICE population in Michigan, and we know that it's even more severe, when you just think about inflation, just buying food, and everything else that all of us are dealing with,” Larson said.
Would bolster entire economy
The majority of Michigan jobs – 58% – pay less than $20 per hour. A single adult needs to make $11.70 per hour just to make ends meet, while a family of four needs $32.06 per hour. Low-wage jobs dominate the employment landscape, and an increase in contract jobs and on-demand jobs is leading to less financial stability.
Larson characterizes EITC as an incentive for working rather than a handout.
“We need people working, and this helps them continue to work. It removes some barriers for them,” Larson says. “At the same time, I truly believe the Earned Income Tax Credit really helps local communities. Sometimes they think it's just the (recipients), but in reality, the dollars that they get are typically spent locally. So this is something that helps the economy at a local level, which is huge as well.”.
Along the lakeshore, many households meet the ALICE threshold:
21% of Allegan County’s nearly 44,000 households.
31% of Muskegon County’s 66,000-plus households -- which is higher than the state average of 25%.
22% of Ottawa County’s 105,000-plus households.
These families essentially live on the edge of destitution because they don’t have a savings account they can fall back on when something goes wrong.
“We've heard it where an individual’s car breaks down and they're like, I have no way to fix my car, which means they lose their job because they don't have transportation to get to work,” Larson says. “And then the bottom falls out.
“These dollars can really really help individuals and families like that. They're doing what they can, but they're struggling. People need to understand that this is a lift to working families.”