Michigan Tax Credit For Low-Wage Earners May Be Eliminated

LANSING (AP) - When Michigan enacted a tax credit for low- to moderate-income individuals and families nine years ago, it was an unmistakably bipartisan, united step.

Then-Gov. Jennifer Granholm, a Democrat, signed the legislation after it cleared the Republican-controlled Legislature with ease - 38-0 in the Senate, 103-3 in the House.

Times have changed.

The state's earned income tax credit -- a mini version of a 40-year-old federal credit -- was scaled back in the GOP's business-friendly tax code overhaul in 2011. And House Republicans voted Wednesday to end it as part of a $1.2 billion road-funding plan, saving at least $115 million a year.

The credit's days may be numbered.

Senate Majority Leader Arlan Meekhof, who plans to unveil a Senate transportation infrastructure proposal this summer, told The Associated Press on Friday that he supports eliminating the credit and so does a majority of his caucus.

"The majority of this (credit) is federal money for the person. The state portion of this is very, very small," the West Olive Republican said in a phone interview. "The public has pretty soundly told us they want the roads fixed and we have to redirect our priorities to that activity."

The credit's supporters, predominantly Democrats and groups that advocate for the poor such as the Michigan Catholic Conference, say it helps low-income people pay their bills and buy groceries and other necessities.

Democratic Rep. Stephanie Chang of Detroit said the House bill amounted to a tax hike on financially strapped families. And Rep. Brandon Dillon, a Grand Rapids Democrat, called the move "plain mean," especially after voters in May defeated a road-funding ballot measure that would have restored the earned income tax credit to 20 percent of the federal credit, from 6 percent.

"I haven't heard anyone who voted against Proposal 1 say that they want us to stick it to poor people even more," he said.

About 780,000 taxpayers received the credit for the 2013 tax year, according to the state Treasury Department. The average credit was $140. The heaviest concentration of qualifiers made between $5,000 and $15,000 in adjusted gross income. The credit was highest for recipients with adjusted income of $15,000 to $20,000 and averaged $237.

The credit is based on work earnings, not income from welfare or other government benefits. It also is refundable, which means the government writes a check for the difference if a credit exceeds a taxpayer's liability.

What ultimately could save Michigan's credit is that Democratic support likely will be needed for any permanent transportation plan that includes increased gasoline taxes or vehicle registration fees. Both Meekhof and Gov. Rick Snyder have cast doubts on solely cutting spending to put at least $1 billion more into next year's $3.9 billion transportation budget.

Asked last month about getting rid of the credit, the Republican governor mostly saved his criticism for another piece of the House legislation that would cut economic development spending. He did note that Proposal 1 would have increased the credit.

"I want to find solutions on how we can build Michigan stronger without doing it at the expense of other things, if at all possible," Snyder said.

House Appropriations Committee Chairman Al Pscholka, a Stevensville Republican, said spending must be reprioritized, however, and "the loss of a few credits means immeasurable savings for all residents in the years to come."

The federal earned income tax credit was enacted in 1975, made permanent three years later and later expanded numerous times. For the 2014 tax year, a childless worker making under about $15,000 could get up to $496 while a couple with three children could qualify for a $6,143 federal credit if they earned less than around $52,000.

Twenty-five states have their own earned income tax credits.

The federal and Michigan credits are structured to target the largest benefits to working households near the poverty line, raising disposable income by a third or more, the state Department of Treasury reported this year.

Karen Holcomb-Merrill, vice president of the Michigan League for Public Policy, an anti-poverty group in Lansing, said the credits "amount to pocket change for our legislators" but "means a great deal to the families trying to survive on a fraction of a representative's income."

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