It’s been a busy legislative session for state Earned Income Tax Credits (EITCs). Unlike previous years when budget shortfalls forced legislators to target the EITC for reduction, this session an unprecedented number of states have improved existing credits and even enacted new ones.
Here’s a rundown: California became the 27th state (including the District of Columbia) to offer an EITC of its own. Massachusetts, New Jersey and Rhode Island passed legislation to increase their state EITCs to a higher percentage of the federal credit. And Maine just made its EITC refundable.
“State EITCs are invaluable in providing affordable, effective and targeted tax breaks to low-income working families who are hit hardest by state tax systems,” says Meg Wiehe, State Tax Policy Director at the Institute on Taxation and Economic Policy (ITEP). “While the fact remains that every state tax system is upside down, the advancements in state EITCs this year will help improve tax fairness in the five states where lawmakers improved or enacted credits.”
Although Michigan Republicans helped create the state’s EITC less than a decade ago, they’re now trying to eliminate it. In its current incarnation, a road funding plan that originally included an expansion of the state’s EITC tied to a sales tax increase would end the credit entirely. State Republicans have been quick to note their opposition to any plan that raises taxes. But eliminating the EITC would do just that: increase taxes on lower-income families struggling to make ends meet.
The Michigan League for Public Policy reports that nearly 800,000 low-income families raising one million children across the state face a tax hike if the EITC ends. What’s more, many families who receive the Michigan EITC live on the brink of poverty. Removing the credit completely could push them over the edge.
Recent polling shows that two-thirds of Michigan voters support the EITC and oppose eliminating the credit. Fortunately, the Michigan Senate just approved a version of the plan that would retain the EITC, protecting low-income working families from a harmful tax hike. State policy groups and advocates are hopeful that the House will do the same.