For months, Governor Rick Snyder has been trying desperately to enact massive business tax cuts paid for with new taxes on pension income and the elimination of the Earned Income Tax Credit (EITC). Unfortunately, a modified version of Snyder’s plan passed both houses of the state legislature yesterday and is now on its way to the Governor’s desk, where it will soon be signed into law. In a bit of good news, however, the excellent advocacy work done by the Michigan League for Human Services (MLHS) and others ultimately resulted in the EITC being spared from complete elimination — though it has been scaled back by some seventy percent.
The stated purpose of Gov. Snyder’s plan is to slash taxes on businesses by some 80 percent (or $1.7 billion per year) in order to create jobs in Michigan. There are many reasons to be skeptical of the true job-creation potential of these tax cuts, and even Gov. Snyder confessed that “I can’t guarantee results." But most lawmakers internalized this line of argument so thoroughly that it had not been debated in quite some time.
Rather, the majority of the debate focused on how to pay for Gov. Snyder’s "job creation plan." The Governor proposed doing this through a package of income tax increases that critics rightly pointed out would fall most heavily on the poor and the elderly.
The House quickly recognized that passing the Governor’s proposal as-is would have been political suicide, and responded by scaling back the tax increases on the elderly, and by offering an extremely small, token tax cut to low-income working families as a replacement for the EITC. These changes did little to alter to overall distribution of the Governor’s plan, but they did add just enough window dressing for the plan to gain passage in the House by the slimmest of margins, 56-53.
After passing the House, the bill faced a tough uphill fight in the Senate where many Republicans were very excited about showering the state’s business community with tax cuts, but much less excited about the personal income tax hikes that would be needed to make this happen.
In the end, the most notable change to occur in the Senate was the reintroduction of the EITC, set at a level equal to 6 percent of the federal credit. Given that Michigan’s current EITC is equal to 20 percent of the federal credit, this change will still result in a steep tax hike on low-income families.
Nonetheless, the 6 percent credit is an enormous improvement over the measly, $25 per-kid credit that the House proposed as a replacement to the EITC. And perhaps most importantly, it leaves Michigan’s progressive community with a great starting point to begin rebuilding the state’s tattered safety net when the political climate eventually becomes more favorable.
Ultimately, the Senate vote was even closer than in the House. The legislation passed out of the Senate only when a 19-19 tie was broken by Lt. Gov. Brian Calley. Clearly, there are a lot of people that are very unhappy the massive tax shift currently underway in the state of Michigan. For the meantime, however, it appears that the state’s elderly and poor residents will just have to get used to paying a lot more, so that the business community can pay a lot less.