Expanded tax credit could benefit thousands in Northern Michigan

Feb. 4—TRAVERSE CITY — As many as 5,000 families in Grand Traverse County could reap the benefits of Michigan's proposed earned income tax credit increase.

The plan has been a stated priority for the Democrat-controlled Legislature and Gov. Whitmer since the start of the new political term last month.

If a family is already eligible to receive the federal earned income tax credit, the state could tack on an extra 30 percent, under legislation passed in the Senate. So, if a family received $1,000 on their federal return via the earned income tax credit, they'd ultimately receive another $300 on their state return.

Federal earned income tax credits go as high as $6,000.

Michigan already piggybacks off the federal tax credit, and is one of several states to do so. But it currently only offers a 6-percent top-off, lagging behind the rate offered by most other states.

"What we found is that, at the current rate, ... it's really not enough, which is why we've been really adamant that we need to see an increase," said Anne Kuhnen, tax policy analyst from the Michigan League for Public Policy.

In a similar House version of the bill, that increase would be retroactive, so it would apply to the 2022 tax season currently underway, and could bring as many as 33,000 Michiganders out of poverty, according to Michigan League for Public Policy's calculations.

If that measure passes, initial state tax returns will only include the 6 percent credit, but a follow-up check would come later in the year to cover the remainder.

Proponents say the bump could go a long way for working people in Northern Michigan — especially now that several COVID-era federal tax benefits have expired.

"I can see people really struggling this season," said Meg Hevanga, tax program manager at the Northwest Michigan Community Action Agency (NMCAA).

NMCAA offers free tax preparation to households that make under $75,000 a year.

Havenga said the taxpayers they work with are usually happy to see the size of their return. But this year, "they're disappointed," she said.

On the day she was interviewed by the Record-Eagle, Havenga said she had just completed the taxes for a single mother with two dependents.

The mother, who works as a hairdresser, was eligible for the expanded tax credits approved under the American Rescue Plan for the 2021 tax season, and was expecting to see a similar return this year, Havenga said.

Instead, her return will be roughly half of what it was a year ago.

"If you're going from a $6,000 or $7,000 to a $3000 or $4,000 return, that's a really huge, significant impact," Havenga said. "And maybe you were planning on buying a car or paying college tuition, or whatever it might be that you need to do with that money."

For some working families, the credits coming from their tax returns account for roughly half of their income a year, allowing them to feed and clothe their children, she said.

"Nobody's buying boats with their earned income credit," she said.

Under the American Rescue Plan Act, the federal Earned Income Tax Credit was not only increased, but also expanded to include more people — including those without children, and people at the lowest income levels, including those with no income at all.

It also expanded the federal child tax credit, increasing payments to families already receiving the credit, as well as extending it to the lowest income-earners.

National markers indicate rates of child poverty and food insecurity fell sharply following those expansions. Until the federal legislative session drew to a close last year, it remained unclear whether Democrats in Congress would succeed in extending those credits to the following tax season.

They didn't, and both the Child Tax Credit and the Earned Income Tax Credit will return to pre-pandemic levels. Meanwhile, inflation has risen over the past year.

"People are really stretched right now, while the additional benefits that they were getting in the height of the pandemic have expired," Kuhnen said. "And there's just this additional need to help people lift themselves up."

The state's proposed earned income tax credit increase doesn't fill in all the gaps left behind by the federal stimulus package, nor is it intended to. It doesn't, for example, offer anything more to those who lost eligibility to the federal credit this year.

Data from the Michigan League for Public Policy's website indicates that 5,320 families in Grand Traverse County benefited from the tax credit in 2020, prior to the expansion. That number nearly doubles when expanded to include the five-county region of Grand Traverse, Benzie, Leelanau, Antrim and Kalkaska.

Other states, including Illinois, Utah, Virginia, New Jersey, Vermont, California and New Mexico, have expanded or implemented their own child tax credits, but Michigan does not have such a credit of its own.

For now, the Michigan Legislature is still working on finalizing the earned income tax credit increase before sending it off to the governor.

Both the House and the Senate have passed two different versions of that bill, and legislators are meeting to negotiate the final package. There could be a deal this upcoming week, Bridge Michigan reported.

There are two other major tax cuts wrapped up in the same melange of negotiations: One that would remove the state income tax on pensions and other retirement incomes, and a possible reduction of state income taxes across the board, triggered by a 2015 law which calls for such a reduction if state revenues exceed a certain threshold.

"The governor, and Democrats in the Legislature are actively standing in the way of tax relief at a time when residents in my district are already finding it difficult to make ends meet," said Rep. Ken Borton, R-Gaylord, in a press release this week.

The earned income tax credit increase, although largely favored by Democrats, has received some support across the aisle. Rep. John Damoose, R-Harbor Springs, said the bill isn't his "first choice," but that "it's a solid foundation" to help needy families.

"The cost of living has risen sharply, and countless people are falling behind," said Damoose in a press release. "Getting assistance to those who need it most is, and will continue to be, a priority."

Report for America corps member and data journalist William T. Perkins' reporting is made possible by a partnership between the Record-Eagle and Report for America, a journalism service project founded by the nonprofit Ground Truth Project. Generous community support helps fund a local share of the Record-Eagle/RFA partnership. To support RFA reporters in Traverse City, go to www.record-eagle.com/rfa.