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MI Earned Income Tax Credit Could Climb To 30%

December 14, 2021

A Sen. Wayne A. Schmidt (R-Traverse City) bill aiming to boost the state’s earned income tax credits (EITCs) by up to 30% of an individual’s federal EITC over several years received its first hearing Wednesday in a Senate committee.

Supporters of both the federal and statewide EITC laws have described them as “the single most successful anti-poverty policy” for its government-provided incentive to join the labor force. In 2006, Michigan passed its own EITC, offering working tax filers to obtain a tax credit on their state income taxes that was equivalent to 20% of their federal EITC. 

“In 2011, the Michigan EITC was reduced to 6% of the federal credit,” Schmidt said at Wednesday’s Senate Finance Committee meeting. “In 2011, it was a much different time. We had to make difficult cuts to balance the budget. We’ve come a long way since then and we now have the opportunity to use this tool to make transformational changes for Michigan’s families.” 

Schmidt said in 2019, approximately 738,000 households in Michigan received an average benefit of $150 from the state’s EITC, subtracting $111 million from the state’s General Fund (GF). 

“My bill would take the EITC from its current 6% and increase it from 15% up to 30% over the course of several years – so what’s the difference between the current 6% and 30% as proposed? A single mother with two children making a little over $17,000 a year gets nearly a $6,000 federal EITC and, under current Michigan law, about $350 from the state,” Schmidt said. 

If the state were to increase its EITC to 30%, that mother could receive nearly $1,800 as an incentive for being a working mom. 

Schmidt’s SB 417 would increase the EITC year-by-year, hopping from 7% in the 2021 tax year, 8% in the 2022 tax year, 9% in 2023 and so on. 

Funding a state EITC at 15% would reduce the GF by $175.1 million above the current 6%, and reaching 30% would increase GF losses by $460 million. Schmidt said COVID-19 recovery dollars can be utilized to prepare for these financial drops, but clarified that he doesn’t want to reduce the EITC value when federal assistance is no longer as massive as it is now. 

Already, organizations like the Small Business Association of Michigan and the Michigan Restaurant and Lodging Association (MRLA) are supporting the legislation, viewing SB 417 as potentially being a saving grace amidst an unprecedented labor shortage. 

John McNamara, vice president of government affairs for the MRLA, said although hospitality wages in Michigan are up by 12.2% from February 2020 to September 2021 – above the 6.9% average across all other private sector employers – the industry is about 66,000 employees short from December 2019. 

“Michigan’s hospitality industry is likely years away from being back to a pre-COVID-19 status, getting staff back to a pre-pandemic level will be pivotal toward reintegration and I firmly believe SB 417 will help achieve that goal,” McNamara said. 

Phillip Knightof the Food Bank Council of Michigan also supported the bill, explaining that more than 50% of those who utilize Michigan’s food banks are employed and distribution across food banks has skyrocketed by 47% during the COVID-19 pandemic. 

Additionally, 24% of those coming to the food banks are children 18 years-old and under. 

“We support the EITC simply from the standpoint that if it puts more money into families, household budgets and they’re able to provide for themselves and choose trade-offs off the table between rent and food and utilities…that lessens the severity and stress on our network,” Knight said. 

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