Michigan Legislature approves expanding tax credit for low-income workers: What it means

The Michigan House and Senate easily approved similar bills on Thursday to expand a state tax credit for low-income workers, an idea championed Wednesday by Gov. Gretchen Whitmer in her State of the State address.

Expanding the Earned Income Tax Credit, also called the Working Families Tax Credit, passed by a 27-11 margin in the Senate, with seven Republicans joining the 20 Senate Democrats to ensure the bill's approval. A similar bill passed 100-8 in the House later Thursday night.

It's an idea championed by Democrats, Republicans and hundreds of advocacy groups, and will likely be one of the first bills to become law in the new legislative term.

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What's in the bills?

There are currently state and federal Earned Income Tax Credits aimed at helping workers who earn low pay. Currently, the state offers a credit that's 6% of the federal amount. Both the House and Senate bills would expand that to 30% for the 2023 tax year, while allowing for a 24% credit to be applied retroactively to taxes in 2022.

Sen. Kristen McDonald Rivet, D-Bay City, is the lead sponsor of the Senate bill. She explained the impact: a single mother earning about $17,000 a year who also has two children would receive roughly $350 from the current state credit. Expanding the credit to 30% of the federal credit would mean she'd receive about $1,800, the senator said.

Democrats in the Senate originally proposed gradually increasing the credit to 30% over a number of years, but tweaked their bill so that the increase takes effect sooner. That mirrors a House Republican plan, including the retroactive component for the prior tax year.

Who would this apply to?

Eligibility for the state and federal credits are the same. In general, in order to qualify a person must be a U.S. citizen who worked. The actual income level that determines eligibility depends on whether a person is filing taxes with a spouse and if they are claiming any children.

For example, a married couple with no children would only be eligible if they earned less than $22,610 in 2022, according to the IRS. But a married couple with three kids would be eligible if they earned less than $57,187.

The Michigan League for Public Policy estimates nearly 740,000 families in the state claimed the credit for the 2019 tax year, receiving an average of $150.

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What were the arguments for and against it?

Before Thursday's votes, a coalition of business, faith and community leaders advocated for expanding the credit.

McDonald Rivet voiced many of their arguments in favor of expanding how much the state pays out based on the federal credit, noting the U.S. Centers for Disease Control and Prevention estimated the federal credit kept more children living above the poverty line than any other similar program in the country's history.

"This puts money in the pockets of working families now, when they need it the most," McDonald Rivet said.

"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."

Several Republicans argued the credit doesn't actually achieve its intended goal, though.

Sen. Thomas Albert, R-Lowell, suggested it may create a disincentive for people to earn more pay, because a salary hike could make them ineligible for the credit.

"I admit it does help lift some people out of poverty, and I acknowledge and obviously welcome that. But I see little evidence that the EITC truly incentivizes people to get a job or work more hours," Albert said.

All 20 Senate Democrats voted for the Senate bill. So did the following seven Senate Republicans: Sens. Joe Bellino, R-Monroe; John Damoose, R-Harbor Springs; Mark Huizenga, R-Walker; Ruth Johnson, R-Holly; Ed McBroom, R-Vulcan; Roger Victory, R-Hudsonville; and Michael Webber, R-Rochester Hills.

"This would provide the average working-class household with an additional $600 a year at a time when inflation continues to impact family budgets across our state,” Bellino said in a prepared statment. “Thankfully, the bill was amended before being passed to provide this relief immediately, instead of forcing people to wait four years to get the full benefit. It is a huge step forward to using some of our historic budget surplus to help Michigan families keep more of their hard-earned wages.”

The House measure passed with broad, bipartisan support. Reps. Jim DeSana, R-Carleton, Jamie Thompson, R-Brownstown and Reggie Miller, D-Van Buren Charter Township voted for it. Rep. William Bruck, R-Erie, had an excused absence.

“All of us in this chamber have spoken with people who are struggling to make ends meet right now,” Thompson said on the House floor. “I’ve heard from blue-collar workers, single parents and people who see state government sitting on billions of dollars while they pinch pennies. Bills for them are getting higher and their confidence is getting lower. They have called on us to deliver solutions. This plan will help people living paycheck to paycheck and those feeling the sting of inflation. It will bring immediate relief people desperately need right now – not a year or more from now like what had initially been laid out.”

What happens next?

Either the House or the Senate bill must pass through the opposite chamber and be signed by the governor to become law. It's unclear, as of yet, which chamber's version is destined to reach the governor's desk.

Either version would support of two-thirds of the members of the Senate to take effect immediately upon the governor's signing it. The Senate bill's margins indicate it's likely to meet that threshold.

Whitmer is expected to sign essentially any expansion of the EITC that makes it to her desk.

The Detroit Free Press contributed to this report.

This article originally appeared on The Monroe News: Legislature approves expanding tax credit for low-income workers