(Source: MIRS.news, Published 01/26/2023) The Senate and House both approved legislation Thursday retroactively increasing Michigan's Earned Income Tax Credit (EITC) to 30% of the federal credit, aiming to provide an employment tax incentive and assistance to nearly 740,000 low income workers.
Thursday's passage in the Senate came the morning after Democratic Gov. Gretchen Whitmer's State of the State address. In her remarks, enlarging Michigan's EITC, which she dubbed as the "Working Families Tax Credit," and revoking the 2011 income tax code – that removed the unlimited income tax exemptions on public pensions – were listed as key parts of Whitmer's "Lowering MI Costs" proposal.
Legislation enlarging Michigan's EITC was approved 27-11 in the Senate, and Republican Sens. Joseph Bellino JR. (R-Monroe), John DaMoose (R-Harbor Springs), Mark Huizenga (R-Walker), Ruth Johnson (R-Holly), Ed McBroom (R-Waucedah Twp.), Roger Victory (R-Hudsonville) and Michael Webber (R-Rochester Hills) joined the Democratic caucus in supporting the legislation.
"You know, Lansing is often a political game. I think it's important to know that, particularly, this tax credit has historically had both Republican and Democratic support," said Sen. Kristen McDonald Rivet (D-Bay City), the sponsor of SB 3. "There were enough Republican votes. It's the right thing to do, and I think you'll see on this tax credit in particular that we'll see pretty broad bipartisan support."
According to the Michigan League for Public Policy (MLPP), bringing the state's EITC up to 30% of the federal credit would mean an average credit of $750 for eligible families, distributing $443 million overall in relief to those who qualify.
"In short, this puts money in the pockets of working families now when they need it the most. Decades – literally decades – of research indicate that families mostly use the EITC to pay for necessities like repairing homes, maintaining vehicles that are needed to commute to work and, in some cases, obtaining additional education and training to boost their employability and earning power," McDonald Rivet said on the Senate floor.
In combination with the federal credit, McDonald Rivet said various families could see an estimated $3,000 bump in assistance. Under SB 3 as well, Michigan would rank among the top 25% for having a high-value state EITC.
One of the expansion's opponents, Sen. Thomas Albert (R-Lowell) – last term's House Appropriations chair who resigned due to his concerns about overspending – recognized that the EITC's main goals were to lift people out of poverty and to promote work.
"I agree with these goals. These are good goals, but now we have decades of experience of the EITC behind us," Albert said. "There are ways to help low-and-middle income wage earners in Michigan with tax relief plans that do not (have) EITC's flaws. The Federal Internal Revenue Service estimates 21-26% of EITC claims are paid in error. It is very likely that most of this is due to honest mistakes, because the EITC is very complicated."
Albert said the EITC is hard to follow due to income thresholds varying based on marital status and the number of children in the family. He additionally said that with Michigan's median household income being reported at around $63,000, "this plan will not help average hardworking Michigan families."
He believed that raising the amount of tax-free income in the state, for all Michiganders, would be a better solution.
SB 3 was also given a substitute during its Tuesday committee adoption, ditching a phase-in approach that would have resulted in the credit reaching 30% after 2025.
Instead, the revamped bill will result in the EITC hitting 30% of the federal credit in tax years following 2022, and certain 2022 tax year filers will be entitled to an added credit to make up the new difference.
Eligibility for the EITC ranges from a non-married working resident without children earning $21,430 annually to a married couple with three or more qualifying children earning $57,414 annually.
Later in the evening, the House decided to also take up their version of the bill.
In the original House version of SB 3, HB 4002 by Rep. Nate Shannon (D-Sterling Heights), the state's EITC would be expanded to 20% of the federal credit.
"We're in negotiations, but I'm hopeful that the House will come on board with 30%," McDonald Rivet said. "I think that there are a lot of priorities, and to my knowledge, this will not impact the income tax rollback at all."
Shannon's bill was amended on the floor by Rep. Rachel Hood (D-Grand Rapids), upping the credit to 30% and making it retroactive to 2022, after House Republicans called for retroactivity with their own introduced legislation on opening day.
The measure appeared to go a long way for Republicans, who overall supported the legislation. The bill was passed with 100 votes in favor and 8 opposed with Reps. William Bruck (R-Erie) and Sarah Lightner (R-Springport) not present.
No votes included Reps. Steve Carra (R-Three Rivers), Andrew Fink (R-Osseo), Joseph D. Fox (R-Fremont), Neil Friske (R-Charlevoix), Jaime Greene (R-Richmond), Matt Maddock (R-Milford), Josh Schriver (R-Oxford) and Rachelle Smit (R-Shelbyville).
