Michigan Information & Research Service Inc.
Michigan Information & Research Service Inc.

EITC Expansion Joining List Of Lame Duck Casualties

12/02/22 09:28 AM By Team MIRS

(Source: MIRS.news, Published 11/30/2022) Although term-limited Sen. Wayne A. Schmidt (R-Traverse City) does believe in Christmas miracles, he highly doubts his legislation to gradually increase Michigan's Earned Income Tax Credit (EITC) to 30% will see the Governor's desk before 2022 concludes. 


Gov. Gretchen Whitmer announced her ambitions to triple Michigan's EITC during her State of the State address in late January. 


Republicans were interested in running the Governor's tax cut priority, but MIRS has learned the return Whitmer was offering in the form of a limited, one-year-only income tax cut wasn't palatable to GOP leadership, which wanted something longer term.


The Governor presented her EITC item specifically as a tax cut item that would deliver an average tax refund of $3,000 to 730,000 to Michigan households. Meanwhile, Schmidt's bill – sharing Whitmer's sentiment – had already been introduced and received an official committee hearing less than two months before her State of the State remarks. 


As of today, however, there's been no public signs indicating a successful negotiation between the Governor and lawmakers has been completed when it comes to this reform. 


In fact, Senate Minority Leader Jim Ananich (D-Flint), the head of the chamber's Democrats, told MIRS in early November that he believes anything major will happen in 2023 when specifically asked about the EITC conversation. 


"I'm disappointed," Schmidt told MIRS Tuesday evening, after the Senate held what's anticipated to be its second-to-last active session day before the year ends. 


Near the end of last year, Schmidt introduced SB 417, which took a phase-in approach to expanding Michigan's EITC from the present-day 6% to 15% for the tax year after 2021, to 20% for the tax year following 2022, to 25% for the tax year after 2023 and hitting 30% afterward. 


When Schmidt initially presented SB 417 to the Senate Finance Committee in December 2021, he relayed how around 738,000 Michigan households in 2019 received an average benefit of $150 from the state's EITC, subtracting $11 million from the state's General Fund. 


He said a single mother, earning a little over $17,000 annually and caring for two children, would go from obtaining around $350 from the state's current EITC to nearly $1,800 if the credit was 30% of its federal counterpart. 


"We came a lot closer to getting it done. I'm just wishing we could have got it across the finish line," Schmidt said to MIRS, adding discussions with the chamber's fiscal team and Senate Appropriations Chair Jim Stamas (R-Midland) validated that "we could have sustained that going forward." 


During the first year of the phase-in process under SB 417, the expansion would cost the state $175.1 million in General Fund revenue. After 30% was reached, the Senate Fiscal Agency projected approximately $460 million would be lost annually in state dollars. 


When asked who's to blame if the EITC does not cross 2022's finish line, Schmidt said "I think it was a campaign year, and I don't want to blame anybody. It just kind of happened unfortunately that we didn't get more traction sooner." 


"The partners that were involved with it made some good cases. We were building some momentum, but my time, my 14 years, have run out and hopefully we've set it up so that this next legislature can do it," he said, referencing the Democratic-majority House and Senate that will start in 2023. 


But if there's a deal that can be struck, Schmidt said he will be the first person to say "yes," even if it's not his exact proposal. 


When MIRS reached out to the Governor's office for some perspective on Schmidt's SB 417, Communications Director Bobby Leddy cited the proposal Whitmer made during the State of the State address. 


"There is bipartisan support for her proposal and we are hopeful this current legislature will get this done to deliver targeted relief for hard-working families across the state. If the legislature isn't able to do it this year, it will be the first thing on our list for next year with the newly-elected legislature," Leddy said in a statement. 


As a call to place some urgency on passing SB 417 ahead of the new year, non-profit organization and economic think-tank Michigan Future Inc. hosted a virtual press conference this morning. 


Michigan Future Inc. President Lou Glazer said that if the EITC is expanded now, eligible residents will receive an extra $600 when they file their 2022 taxes within the next several months. He summarized that waiting until 2023 will postpone the assistance until the 2024 tax filing season. 


"There's a difference between having a credit to help people pay the bills in the time of (inflation) now as opposed to a year from now," Glazer said, also stating: "employers now are having a hard time filling vacancies, getting people to come back to the workforce…all of the evidence is that the Earned Income Tax Credit is an effective incentive to go back to work." 


Glazer said part of the support for Schmidt's bill is to use it as a vehicle for delivering a 30% expansion immediately, as opposed to utilizing the phase-in model. 


The discussion also featured Kent County Treasurer Peter MacGregor, a Michigan Future Inc. board member who served in the Senate from 2015 until the end of 2020. 


When asked what his personal theories are in relation to what could have gone wrong at the negotiation table between legislators and Whitmer, MacGregor said he thinks there are still Republican lawmakers who misunderstand the EITC. 


"They think it's a handout. This is a hand-up. This is for working families. You can only get it if you work and file a tax return…and I think when it's brought up, a lot of people just don't want to listen to the facts," MacGregor said. "When I first came on board back in January 2021, one of our tasks was to get as many of the business associations and entities and chambers on board, and that took a lot of work." 


MacGregor said he thinks poor communication early on could have been what went wrong.