By BROOKE KANSIER
Capital News Service
LANSING — Michigan is still catching up after the Great Recession crashed the economy — and for most residents, the 2011 rewrite of the state tax code made things worse, Democratic legislators say.
Lawmakers recently took aim at tax changes approved by Gov. Rick Snyder that they said shifted the burden from businesses to individuals and harmed mid and low-wage workers.
“Most families in our state continue to struggle economically, and the income and equality and disparity between the wealthy and everyone else continues to get ever bigger,” Democratic House Leader Tim Greimel of Oakland County said. “A big part of that is related to the massive tax shift that Republicans in state government orchestrated in 2011.”
Under the 2011 rewrite, multiple tax benefits for middle class and low-income residents were cut or reduced, including significant reductions to a tax credit that helps low-wage workers and their families. A $600 per child tax credit for families was also cut, and a new tax on pensions was added.
Democrats say these tax changes hurt an already suffering middle and lower class that has seen serious decreases in median wage since 2000. That’s a drop of nearly $14,000, according to a report by the nonprofit Pew Charitable Trusts. Democrats also cited a 4.3 percent shrink in the middle class this century.
To counteract these issues, work toward a healthier middle class and smaller tax disparities among individuals and businesses, Democrats have put forth multiple bills this spring.
One initiative, to restore the Michigan Earned Income Tax Credit (EITC), is part of the Proposal 1 referendum to raise the sales tax primarily to improve road conditions. If the proposal passes on May 5, the credit — which helps low wage workers by allotting them a percentage of their taxed income back — would return to 20 percent of the value of their federal credit.
Reducing the credit in 2011 was a mistake, said Charles Ballard, professor of economics at Michigan State University and director of a quarterly survey of residents’ views about state issues. It had a small economic impact but was a large loss to many low-wage, working Michiganders.
“When you’re talking about low income, working families, you’re talking about people with a household income of $25,000, he said. “If their EITC was to be boosted by $500, say, or $700, that’s a lot. It’s enough to get your car fixed. Its enough to get your children a better coat for the winter.”
According to Greimel, business tax cuts by Republicans in 2011 totaled over $1.7 billion, and much of that was shouldered by low- or middle-income working individuals.
Ballard said the 2011 shift was intended to improve the economy, but in reality, had a minimal impact on the state’s large-scale economic issues. The value of solutions proposed by Democrats is mixed, he said.
“I think some of the things that are being put forth may or may not have an effect in terms of speeding up the economy,” Ballard said. “But they will help the people who get those tax credits, the individual families.”
In addition to restoring earlier provisions, some Democrats have proposed new bills aimed at helping working families. One, introduced by East Lansing Sen. Curtis Hertel Jr., would establish a tax credit to help families cover up to 80 percent of the cost of daycare for their children.
“The cost is insane,” Hertel said. “If you have one kid in daycare for a year, the average cost is like $9,000. We think that you should be able to get some of the money you pay back.”
Ballard said, however, that not all of the new legislation introduced as part of the Democrats’ new budget priorities are necessarily good ones. One he disagrees with is legislation to repeal the 2011 tax on pensions. Retirees still use Michigan roads and parks and should be required to pay taxes, he said.
“There were a lot of people that were very upset when a lot of these things happened at the same time,” Ballard said. “But from my perspective, that does not make the pension tax a bad policy. As our population gets older, more and more people were paying no income tax, and that was contributing to our fiscal problems in the state of Michigan.”
Greimel, along with many Democrats, disagreed, saying that seniors are on a fixed income and that tax cuts for the wealthy and businesses have taken priority over retiree benefits in the state.
“We think that’s wrong,” he said. “We should not ask seniors on a fixed income to pay more so the wealthy can pay less.”
The pension tax, which raised a reported $200 million per year in 2012 and 2013, has been a controversial and partisan issue since its 2011 introduction. A repeal was also proposed last year, but due to the Republican majority in the House, it never made it into a committee. The current bill is also yet to be sent to a committee, Greimel said.
Republicans have criticized much of the legislation that Democrats have introduced, especially increases in deductions and credits. They say that Democrats don’t have a realistic way to pay for the bill.
Republican Senate Finance Committee members did not respond to requests for comment on this story.
Greimel said that more tax equality between individuals and corporations could easily balance such a budget.
“The Republicans had no problem raising taxes on individuals and families in order to pay for a massive corporate tax cut,” he said. “I think the solution is to restore balance, and tax fairness, and to make wealthy corporations pay their fair share.”
By BROOKE KANSIER