Nearly 800,000 Michigan families learned yesterday that their taxes will go up next year to help finance a $1.8 billion business tax cut, as Governor Rick Snyder and legislative leaders announced agreement on a new tax deal that will cut taxes for 95,000 large and small businesses while eliminating the state’s Earned Income Tax Credit (EITC).
Many companies benefiting from the tax cut, such as law firms and professional services groups, will pay no more than a $25 annual fee, even though they benefit greatly from state and local services like police and fire protection, infrastructure, and so on.
Michigan must balance its budget each year and, like most states, is far from running a surplus. So the money to pay for that tax cut has to come from somewhere. Under the new deal, about $350 million will come straight from the pockets of working families (the vast majority of them with children) whose incomes are below $45,000 through repeal of the state’s EITC.
The deal will also scale back a property tax credit for families with incomes between $20,000 and $40,000 and cut spending — most likely on health care for the poor — by $150 million.
Let’s remember who these families are that will pay for this business tax cut:
- They’re taxpayers. Families eligible for the Michigan EITC currently pay between 9 and 10 percent of their income in state and local taxes. For a family earning $35,000 per year, that amounts to $3,500 in sales, excise, property, and income taxes.
- They’ll take a big hit. With the credit’s elimination, a family with two earners and two kids, bringing home slightly more than a minimum wage (say, around $8.40 per hour), will see its income taxes jump to $825 from $361 — an increase of 130 percent. That’s money these families could have spent locally on food, clothes, car repairs, child care, or other basic needs.
- Raising their taxes will ultimately affect the whole state. Already, 1 in 4 children in Michigan are poor; eliminating the EITC will push 14,000 more children and their families into poverty. And research shows that children in poverty grow up to earn less than they otherwise would — an outcome that hurts everyone.
Governor Snyder claims that these corporate tax cuts will stimulate the economy and create jobs. But as we’ve written before, every state tax cut requires a tradeoff elsewhere in the budget. Michigan’s leaders shouldn’t trade investments in the things that really matter for residents and business — reducing poverty, supporting work, and providing high-quality education, health, and infrastructure — to hand out unproven, costly tax breaks.