Michigan Catholic Conference Releases Major Study Calling For a Michigan Earned Income Tax Credit
FOR IMMEDIATE RELEASE
LANSING—The Michigan Catholic Conference (MCC) today released an important public policy study entitled, A Hand Up for Michigan Workers: Creating a State Earned Income Tax Credit. Anderson Economic Group, a Lansing-based consulting group specializing in economics and public policy, prepared the study for the MCC.
“The Michigan Catholic Conference has advocated a Michigan Earned Income Tax Credit (EITC) for several years,” said Paul A. Long, Vice President for Public Policy with the MCC. “We are pleased that Patrick Anderson and the Anderson Economic Group has written this report providing policymaker and opinion leaders with the necessary data and analysis on a State of Michigan EITC.”
The Federal EITC provides significant tax relief to workers, primarily those with families who do not otherwise earn enough after taxes to raise their family above the poverty level. Indeed, the Federal EITC lifts more children out of poverty than any other federal program.
“We have eliminated many barriers towards working out of poverty,” said Patrick Anderson, principal of Anderson Economic Group. “Yet, we have inadvertently increased other barriers in the form of extremely high payroll taxes. These payroll taxes provide a punishing disincentive to working for those who are trying to climb the ladder into the middle class. One powerful way of addressing these punishing disincentives is through an EITC.”
“As we continue to look for measures that increase the incentive to work, the EITC is a logical next step,” added Long. “The EITC is a pro-work, pro-family measure. It provides no benefit to an individual who chooses not to work—but a very nice benefit for someone who, of their own initiative, goes to work.”
Several major conclusions can be drawn from this study:
For most workers earning $32,250 or less per year, payroll taxes—not income taxes are the dominant tax burden.
Current tax policy punishes lower-income workers. Even Michigan workers earning between $5,000 and $20,000 face payroll tax burdens of approximately 20%. By contrast, payroll tax burdens on workers earning above $84,900 per year drop to 2.9%. While these workers pay very high federal income tax rates, it is difficult to defend payroll tax burdens that are seven times as high for low-income workers.
Payroll taxes—including unemployment insurance, FUTA, FICA, and city income tax—impose tax rates that range from 17% to 27% in Michigan, at just $1,000 of wage income.
The Federal EITC effectively encourages work and increases after-tax earnings for low-income workers, by returning to them much of the payroll taxes they otherwise shoulder. A Michigan EITC would increase the effectiveness of the federal credit within our state, further encouraging work and increasing after-tax income.
The gross cost of a Michigan EITC equal to 25% of the federal credit would be approximately $213 million. However, the net cost –after taking into account the other state taxes these workers would pay, as well as reduced social spending—would actually be much lower, about $82 million.
A Michigan EITC would likely induce another 68,700 residents of this state to enter the workforce.
“Letting individuals keep their earnings—rather than face effective tax rates that start above 20%—would strongly encourage work and family independence,” noted Anderson.
“This study clearly demonstrates that a Michigan EITC would provide significant assistance to adults who are trying to work and care for children. The State of Michigan should join the eleven other states that have adopted state earned income tax credits so as to ensure that Michigan’s working families will not have to raise their children in poverty,” concluded Long.
Also in attendance at today’s briefing were Sharon Parks of the Michigan League for Human Services, Sharon Peters of the Michigan Coalition on Children and Families, and Brad Snavely of the Michigan Family Forum.
The Michigan Catholic Conference is the public policy voice for the Catholic Church in this state.