Taxing the Poor

By: Associated Press
By: Associated Press

LANSING, Mich. (AP) -- Alline Anderson's job as a church receptionist in Flint barely pays enough to cover the basics -- rent, food, clothing, utilities.
"There aren't many extras," says the 58-year-old mother of four who has two teenage children living at home. "When I say extras, I mean going to a movie or trying to take a vacation. Those things are very difficult."
This year, though, Anderson's family got help when she became aware of the federal earned income tax credit, or EITC, a break that gives back up to $4,700 to low-income workers.
"It was just a godsend for me," says Anderson, who was able to buy a car to get to work. Her husband cannot work because of health problems.
Anderson stands to get even more help if a new state income tax credit similar to the federal credit takes effect in January as planned. But she's worried that the potential state refund could be jeopardized by a shortfall of at least $1.6 billion the state faces in the budget year that starts Oct. 1.
Republican Sen. Nancy Cassis, R-Novi, has introduced legislation that would keep Michigan's earned income tax credit from going into effect until the state's nearly depleted rainy day fund is much healthier. She says Michigan cannot afford to lose $290 million a year in tax revenue when the credit is fully phased in.
"We are not repealing or taking one penny from anyone," says Cassis, chairwoman of the Senate Finance Committee and the lawmaker who sponsored the 2006 bill putting the state earned income tax credit in place. "It's just holding off on implementing it until we're on a more sure economic footing."
Although some Republicans have signed onto the delay, her bill faces stiff opposition from Democrats who control the state House.
It also is being criticized by backers of the new tax break, some of whom pushed for two decades to get the state EITC in place. They say Cassis' proposal is appalling.
"After all of the tax cuts we give everyone else like businesses and wealthier individuals, we shouldn't be balancing the budget on the backs of working families," says Sharon Parks, vice president for public policy at the Lansing-based Michigan League for Human Services.
An earned income tax credit increases what low-wage workers earn by refunding payroll and income taxes. The amount varies according to income and family size.
Michigan's credit would let low-income workers when they fill out their state income tax forms claim an amount equal to 10 percent of the federal credit in the 2008 tax year and 20 percent in 2009 and after.
For a single mother raising two children, working full-time at the $7.15 minimum wage and making $14,872 annually, the Michigan credit would be $478 in the first year.
A study by the Washington-based Center on Budget and Policy Priorities shows that Michigan was one of just six states in 2006 that taxed two-income families of four with incomes below $15,500 -- a quarter below the federal poverty level. That family would have had to pay $242 in state taxes earlier this year since the state EITC doesn't take effect until next year.
Parks says Michigan's tax structure already hurts the working poor because it charges a flat income tax instead of a graduated one. Under the flat tax, all taxpayers -- whether they make $20,000 a year or $200,000 -- pay the same 3.9 percent rate on income after exemptions are figured in.
Last week, Parks' group sent letters to senators estimating the number of taxpayers in each of their districts who would be eligible to claim the state earned income tax credit if it takes effect as planned. Lawmakers also were told the average refund their low-income constituents could get.
Overall, about 600,000 households in Michigan filed for the federal credit in the 2004 tax year, the last year data is available. At least that many could be eligible for the state tax credit next year.
Sen. Mike Prusi, D-Ispheming, says the new credit should stay.
The proposed bill would effectively stop the credit from taking effect for "years and years and years," Prusi says, because it requires the budget stabilization fund -- also known as the rainy day fund -- to have $250 million in reserves, something that last occurred in 2001, when the state's economy was more robust.
"These people are the ones who will turn around and put (the tax credit) right back into our economy, whether it's $150, $200, $300," says Prusi. "They'll turn around and buy school clothes for their kids."
Cassis says there still would be other help for low-income people if the state tax credit is delayed, such as the federal earned income tax break, cash assistance, Medicaid and food stamps.
Cassis says she is mindful of the needs of low-income residents, but "there are a dozen to two dozen other special interests that would say, 'We need some relief as well."'
Anderson, though, says tax credits add to her family's quality of life. She earns just a hair more than the minimum wage at the Metropolitan Baptist Tabernacle in Flint and says every extra dollar helps.
"It's a struggle," Anderson says. "You make it, but it's a struggle."


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