DETROIT (WWJ/AP) – A new study says Michigan is among just a handful of states raising taxes on low-income working families to finance tax cuts for other groups.
The Washington-based Center for Budget and Policy Priorities released its report Tuesday. It says Michigan, New Jersey and Wisconsin have scaled back tax credits for low-income workers in recent years while cutting business taxes.
In Michigan’s case, low-income families will see their tax breaks shrink starting next year by about $260 million annually while businesses will get a $1.1 billion tax break starting in January and a $1.7 billion tax break the year after.
Michigan Gov. Rick Snyder originally wanted to eliminate the state Earned Income Tax Credit, but agreed to reduce it from 20 percent of the federal credit to 6 percent for tax year 2012. He said earlier this year that the state needed to make cuts to balance the budget and noted no cuts were being made in Medicaid programs providing health care to low-income working families. He also has said the business tax cuts will create jobs.
But the Michigan League for Human Services, which opposed shrinking the EITC, said the change is bad policy.
Five years ago, Michigan was one of just five states that taxed a working family of four making below $14,000, about 71 percent of the federal poverty level, one of the harshest levels of taxation on the poor in the country.
That changed when lawmakers passed the state EITC, which took effect in 2008. Last year, Michigan taxed a family of four only when its income reached 136 percent of the poverty level – about $30,300, according to the center’s report.
“Michigan had made a lot of progress from the days when we used to literally tax working families into poverty,” the league’s policy director, Karen Holcomb-Merrill, said in a statement. “Unfortunately, we’re moving once again moving in the wrong direction on this issue.”
Families qualifying for the EITC have been getting about $430 annually from the credit. That amount will drop to $130 to $140 in the next tax year. Meanwhile, two-thirds of Michigan businesses next year will be exempt from paying corporate income taxes under the new business tax breaks.
“EITC cuts helped offset … the revenue loss from those tax cuts,” the center said in its report. “Instead of undermining efforts to reduce the tax liabilities of poor families, states should preserve the progress they have made and build upon it when their budget outlook improves.”
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