The Detroit News: Advocates rally to restore tax credit for low-income families

Lansing — With tax season at hand, Democrats and human services advocates Tuesday renewed their protests against a state earned income credit cut that kicks in this year and boosts taxes on the average low-income family by $300.

The credit was chopped from 20 percent to 6 percent of the federal earned income tax credit, saving more than $250 million as part of Gov. Rick Snyder’s strategy to end a $1 billion state budget structural deficit. Feb. 27, 2013 — The Detroit News

MLive: Coalition wants Michigan Legislature to boost Earned Income Tax Credit

LANSING, MI – A coalition including the Michigan League for Public Policy wants the state Legislature to increase or restore an income tax credit for lower-income working families.

The campaign seeks to boost Michigan’s Earned Income Tax Credit. It was reduced from 20 percent of the federal EITC credit to 6 percent of the federal credit as part of sweeping tax code changes approved by the Republican-led Legislature in 2011. Feb. 27, 2013 — MLive

KIDS COUNT: Fewer kids locked up

Contact: Jane Zehnder-Merrell  (517) 487-5436 or Michelle Weemhoff (517) 482-4161

Positive trend: Michigan locks up fewer kids
State rate fell 44 percent since 1997

[LANSING, MICH] – Although the youth incarceration rate in Michigan dropped below the national average between 1997 and 2010, the state still locks up too many nonviolent teens, according to a new report from the Annie E. Casey Foundation.

Even with the decline, almost 2,000 Michigan youth under age 21 were living in juvenile residential facilities in 2010 on a single day count. Roughly four of five of these young people were male, and half were African American, according to the online Census of Juveniles in Residential Placement.

“Research shows that placing youth in these facilities does not improve their life chances nor reduce recidivism,’’ said Jane Zehnder-Merrell, the Kids Count in Michigan director at the Michigan League for Public Policy. “And the negative impact of this approach disproportionately affects African American youth who have much higher incarceration rates.” (more…)

Coalition calls for a restoration of the state EITC

Led by the Michigan League for Public Policy, a broad coalition of social justice advocates, religious groups and organizations working to promote economic security held a press conference at the state Capitol this afternoon, to call for a restoration of the Michigan Earned Income Tax Credit.

In 2011, the state EITC was reduced from 20% of the federal EITC, to just 6% (effective tax year 2012), as part of a package to reduce business taxes in the state. For low- and middle-income working families who qualify for, and claim the state EITC, this reduction will mean a 70% tax hike  when they file their taxes. (more…)

Restoration of EITC funding

Contact: David Waymire at (517) 485-6600

A small investment that makes a big difference: Coalition calls for restoration of EITC

Average EITC family seeing a $300 tax increase this year

LANSING, Mich. – Citing its proven effectiveness in helping working families and the communities they live in, a broad coalition of social justice advocates, religious groups and organizations working to combat poverty today called on the Michigan Legislature to reinstate funding for the state Earned Income Tax Credit (EITC), which was slashed from 20 percent of the federal credit to 6 percent in 2011.

The average eligible family saw its taxes increase by more than $300 with the reduction of the state EITC.

“Cutting the EITC was effectively a tax hike on our most vulnerable families,” said Gilda Z. Jacobs, president and CEO of the Michigan League for Public Policy. “While our economy is on the rebound, good-paying jobs are still hard to come by. These families use the EITC to cover the most basic of needs: car repairs, medication co-pays, heating bills. Adding one percentage point back to the EITC would cost only $18 million — it’s a small investment that makes a big difference in people’s lives.” (more…)

The Michigan EITC: A Small Investment that Makes a Big Difference

 

 Full report in PDF

As part of a tax package to reduce business taxes in 2011, the Michigan Earned Income Tax Credit was cut 70%, resulting in a tax increase for many low- and middle-income working families. The EITC keeps children and families out of poverty and helps to fuel economic activity. Restoration of the EITC must be part of the state’s plan to promote economic growth. A strong state credit would go a long way toward helping veterans returning to the workforce, families making minimum wage, children living in poverty, and small businesses in urban and rural economies.

BACKGROUND

The state EITC is a refundable tax credit for working families, designed to promote economic opportunity, encourage and reward work and offset the taxes that these families pay–such as, income, sales, property, excise and other taxes. These taxes hit low- and middle-income families hardest, as they amount to a higher percentage of their total income than their high-earning counterparts. In Michigan, a parent working full time at the minimum wage of $7.40 barely earns $15,300 each year, but pays about 9 cents of every $1 they earn in sales, excise and property taxes. Other Michigan families earning under $52,000 pay around eight cents per dollar. In contrast, households earning $331,000 or more pay only three cents of every dollar of their income in these taxes.1 The EITC makes up for this disparity by reducing the taxes paid by low- and middleincome families, thereby allowing them to keep and spend more of what they earn.

The Michigan EITC piggybacks on the federal EITC as a percentage of the federal tax credit. When the state credit was created in 2006, it was originally set at 10% of the federal EITC in tax year 2008 and 20% in 2009 and subsequent years.2 However, in 2011, the Legislature reduced the state EITC to just 6% for tax year 2012 and subsequent years. This 70% reduction in the Michigan EITC is effectively a tax hike on low- and middle-income working families, who now receive a substantially smaller state tax refund. The average credit is now $132, compared with $439 in 2011.

BENEFITS OF THE EITC

The EITC is an effective anti-poverty tool that helps hard-working families whose income puts them and their children below, or moderately above, the federal poverty line. Despite signs of recovery, many Michigan families continue to struggle with poverty, unemployment and underemployment – the state’s unemployment rate is currently 8.9%, the sixth-highest in the nation.3 The state’s child poverty rate remains high (25%), and its per-capita income ($27,762) is well below the national average.4 In conjunction with its federal counterpart, the state EITC could provide much needed relief to these families if the credit was restored to 20%.

The EITC benefits local economies and small businesses that service low- and middle-income families, particularly in rural and urban areas where big box retailers are absent.

When families receive tax credits, they often spend them quickly in their communities to pay for basic needs, or use them to cover work-related costs such as transportation and child care, all of which help spur local economic activity and benefit many small businesses.

The EITC supports work and reduces poverty. Only individuals and families who work can qualify for the EITC. Over the past 15 years, numerous studies have found that the EITC significantly boosts the work efforts of families.6 Single mothers with young children and single mothers with low levels of education are most likely to experience an increase in employment and hours worked that is attributable to the EITC.7 By encouraging work and by supple-menting the earnings of families whose incomes remain low despite their employment (such as full-time workers earning minimum wage), the EITC helps keep many households out of poverty.

The EITC has long-term benefits, particularly for children. Although most families receive the EITC for just 1 or 2 years, and only 5% of all households experience poverty for multiple years at a time,8 the credit continues to benefit families long after they have moved up the economic ladder. Research shows that an increase in hours worked and earnings may have long-term benefits, such as higher wage growth in later years, and lower levels of poverty in retirement (due to an increase in Social Security credits earned).9

More significantly, the EITC and other programs that boost household income may also enhance children’s academic achievement, according to various studies. In one study, each $1,000 in additional income to a struggling family raised the test scores and improved the overall academic performance of children in that family.10 An income-boosting credit of $3,000 was found to increase a child’s academic perform-ance by the equivalent of two months of additional education, according to another study.11

The children of families whose incomes are supplemented by programs such as the EITC may also benefit in the longer term, as they enter the workforce. A 2011 study found a strong correlation between children’s improved test scores due to tax credits, and their adult work and earnings.12 In another study, children in low-income families who received an income boost of $3,000 per year in the children’s first five years of life, earned 17% more as adults, and worked 135 hours more per year, than their low-income peers whose families did not receive the additional income.13

The EITC stimulates urban and rural economies. The EITC funnels millions of dollars into the local economies of urban and rural counties.14 According to the Michigan-based Anderson Economic Group, the federal EITC has a multiplier effect of between 1.2 and 1.7 times the original amount, depending on population density. For the state as a whole, the Anderson Economic Group estimates a multiplier effect of nearly 2.1, with $1.67 generated for every $1 of EITC received in 2009.15 (“Multiplier effect” refers to new income generated by the injection of extra money into the economy: the original injected investment is spent and becomes someone else’s income. This new income, in turn, is again spent and becomes a third person’s or business’ income, and so on).

The state’s largest city, Detroit, received an estimated $61.2 million in state EITC in 2011, and Congressional District 1, which has the highest concentration of rural counties in the state, received $21.2 million the same year. With the reduction of the Michigan EITC to 6%, funds to Detroit will drop significantly to an estimated $18.4 million in tax year 2012 – a loss of nearly $43 million. Congressional district 1 will see a loss of nearly $15 million, to an estimated $6.4 million the same tax year.16 As a result, the economic impact of the EITC will be greatly diminished in many urban and rural areas of the state, and the small businesses serving these communities will be negatively affected.

A strong EITC helps struggling households. When combined with the federal EITC, a strong Michigan EITC can help families earning low wages avoid poverty and keep their children from enduring the lifetime hardships associated with poverty – including low academic performance in school, and low incomes and higher unemployment rates as those children reach adulthood.

Many Michigan families were able to avoid the pitfalls of poverty in 2009-2011, when the state EITC stood at 20% of the federal credit. As Table 1 shows, in 2011 an estimated $349.2 million in Michigan EITC was disbursed to households in the state. In contrast, with the changes beginning in tax year 2012, the estimated disbursement falls to $104.7 million.17 This is a loss of over $244 million to low- and middle-income families.

In a household of three, a single mother working full-time and earning the state’s minimum wage of $7.40 has an estimated gross income of only $15,392 with which to support her two children. That is well below the federal poverty levels of $18,530 and $19,090 for 2011 and 2012,18 respectively. With a strong state credit, that family’s total EITC refunds would be $6,134, including $1,022 in Michigan EITC at 20% of the federal credit. The state EITC helps raise that family’s income to 116% of the federal poverty line, or $21,526 in 2011. In contrast, in 2012, with a reduced state EITC of only 6%, the family’s total EITC drops to $5,550, including a much smaller $314 in Michigan EITC. This family’s 2012 income declines to a total of $20,942, barely keeping this household above the federal poverty level.

For the mother in the example above, the loss of income could mean not being able to afford to put food on the table, buy prescription medicine, or keep the heat on in cold Michigan winters. In the long term, struggling to just afford basic needs might keep this mother’s children from succeeding in school, or graduating altogether.

CONCLUSION

The Michigan EITC is a powerful anti-poverty tool that has helped many families over its four years of existence. In tax year 2011, an estimated 796,000 Michigan households received the credit and, at 20% of the federal credit, 16,400 children were kept from falling into poverty. In tax year 2012, with a substantially lower state credit (6%), the Michigan EITC will only keep an estimated 4,700 children out of poverty, while leaving another 11,700 children behind.

The families most affected by the 70% reduction in the state EITC will be forced to make tough choices, and will be unable to participate in the local economy as fully as they could if the Michigan EITC were to be restored. As a result, not only will individual low- and middle-income households be affected, but so will the small businesses that serve them.

Knowing what is at stake for families, businesses and local economies, as the state economy shows signs of improvement, the Michigan Legislature should make restoration of the EITC a priority.

Michigan scores just average for savings

The annual Assets and Opportunity Scorecard was recently released by Corporation for Enterprise Development, and Michigan only received a “C” in most of the scorecard categories.

In 2011, more than one in every four Michiganians lived in “asset poverty,” meaning they didn’t have enough savings to live at the poverty level for three months without income. And the number is even higher for liquid assets — more than 40% of Michiganians did not have sufficient liquid assets to subsist at the poverty level for three months without income. (more…)

Fiscal cliff in sight — again

Just two months after the last fiscal cliff threat, we’re in sight of yet another one.

If the sequester is allowed to go into effect on March 1 (just one week from today), fewer Michigan kids will be served by Head Start, emergency shelters will lose support and heating assistance to low-income households will be cut.

Congress is unlikely to take up discussion of taxes in this round of negotiations (most were resolved permanently by the American Tax Payer Relief Act earlier this year). Instead, the new fiscal cliff is all about how to avoid the spending cuts required by sequestration. (more…)

A Closer Look at the Governor’s FY14 School Aid Budget

 Full report in PDF

More details about Gov. Rick Snyder’s proposed K-12 School Aid budget are becoming available as the House and Senate Appropriations Subcommittees for K-12 School Aid meet to debate the Fiscal Year 2014 budget. The Subcommittees are expected to work quickly to create their versions of the funding bills, with the overall goal of finishing the entire state budget by June.

THE SCHOOL AID BUDGET

It is through the School Aid budget that Michigan’s 549 local schools districts and 277 public school academies receive their core funding through a per-pupil foundation allowance. In addition, School Aid dollars are used for a range of educational services including special education, programs for children at-risk of educational failure, adult and vocational education services, and early childhood programs.

More than nine of every ten Michigan students are enrolled in traditional local school districts, with the remainder in public school academies or charter schools.1 As a result of lower birth rates, both have experienced declines in enrollment, resulting in a loss of revenue to schools. In the decade between 2003 and 2013, the number of students in Michigan’s public schools and academies fell from 1.7 million to 1.5 million.

K-12 EDUCATION SPENDING TRENDS

Michigan’s School Aid Fund can only be used to fund local school districts, Intermediate School Districts and various other educational agencies and entities. In the decade between 2003 and 2013, School Aid funds remained relatively flat, despite increases in costs. The minimum per-pupil foundation allowance increased by only 4% during the decade, in the face of a 21% increase in inflation.2 In Fiscal Year 2012, school districts suffered a cut of $470 per pupil. The per-pupil foundation allowance accounts for more than $2 of every $3 dollars in K-12 School Aid.

GOVERNOR’S FY14 RECOMMENDATIONS

The governor recommends a small increase (2.2%) in the K-12 School Aid budget, with total funding increasing from $12.94 billion in the current fiscal year to $13.24 billion in Fiscal Year 2014.3 Included in his recommendations for 2014 are the following:

Per-pupil foundation allowance and special grants: The governor does not recommend an across-the-board increase in the per-pupil allowance used by schools for general operations, and with the reduction in special payments for districts that comply with certain best practices, some districts will actually experience a cut in their per-pupil payments.

  • Equity payments: The governor recommends a total of $24 million for equity payments to further close the foundation allowance funding gap between districts by raising the per-pupil payment for the lowest-funded districts receiving the minimum grant from $6,966 to $7,000 per-pupil–an increase of $34 per pupil for eligible districts.

Public schools and academies use a mix of state and local funds to pay for most of their school operations. With passage of Proposal A in 1995, a per-pupil foundation allowance was determined for districts based on what the district collected from both state and local funds in the prior school year. Before Proposal A, the per-pupil spending difference between the highest and lowest-funded districts was almost $6,900 or 3:1; in the current year, the difference is $4,888 or less than 2:1.4 The current minimum foundation allowance is $6,066, and the basic foundation allowance is $8,019.5

  • Best practices incentive grants: In the current fiscal year, $80 million is available for school districts that meet seven of eight “best practices,” as defined by the Legislature. The governor’s budget would reduce funding for the incentive grants to $25 million, a nearly 70% decrease, with the award amount falling from $52 per pupil to $16. The governor eliminates the grants in Fiscal Year 2015. Districts that have been receiving the best practices award of $52 could be facing cuts in their per-pupil allocations next year, with particularly deep cuts for districts that are not eligible for the new equity payments. For example, districts that are not receiving the minimum foundation allowance, but qualified for best practices in 2012-13, will receive $36 less per pupil.6 If the grants are eliminated in Fiscal Year 2015, districts will face additional cuts.

The best practices identified for districts include: (1) participates in schools of choice; (2) measures student growth at least twice a year; (3) offers dual enrollment or other opportunities for postsecondary coursework; (4) offers online learning opportunities; (5) acts as the policyholder for employee health care benefits; (6) provides a dashboard to parents and communities to help them evaluate the district’s performance; (7) competitively bids at least one non-instructional service; and (8) offers physical or health education.

  • District performance funding: The governor recommends continuation funding of $30 million for districts meeting specified performance requirements in reading and math. Districts can receive a total of $100 per pupil in additional funding based on performance, with $30 for student academic growth in math for grades 3-8, $30 for growth in reading in grades 3-8, and $40 for growth in all high school tested subjects (reading, writing, math, science and social studies). In testimony before the House Appropriations Subcommittee for K-12 School Aid, officials from the State Budget Office noted that only one school district received the full $100 per pupil in the first year of performance funding.
  • Small class size supplemental payments: The governor reduces funding currently available to encourage smaller class sizes (kindergarten through 3rd grade) from $13 million to $9 million, a cut of 31%. For districts with a foundation allowance of $7,500 or more, the payment will be capped at $50 per pupil; districts with per-pupil payments of less than $7,500 could receive up to $100 per pupil.
  • Competitive student-centric grants: The governor includes $8 million in new funding for competitive grants to districts that work to align instruction with individual student learning styles and paces, and that advance students based on their mastery of the material. These funds are related to the new Educational Achievement Authority, which is currently operating in 15 Detroit schools, and is designed to increase state oversight of the lowest performing 5% of schools in Michigan.

Special education: The governor recommends a small decrease in funding for special education based on anticipated costs.

The budget includes approximately $1.42 billion (11% of the School Aid budget) for special education programs, a reduction of $10.7 million or less than 1%. More than two-thirds (69%) is state funding, with the remainder coming from the federal government. Overall funding for special education grew by nearly 17% between Fiscal Years 2004 and 2013, although funding has dropped slightly since Fiscal Year 2010—from $1.49 billion to $1.4 billion (3%).

At-risk programs: The governor recommends continuation funding for programs for children at-risk of school failure, child and adolescent health centers, and hearing and vision screenings.

  • At-Risk funding: The governor provides continuation funding of $309 million for students at risk of academic failure. These dollars can be used flexibly by local school districts for a range of services including tutoring and mentoring, reading programs, initiatives to reduce class sizes, credit recovery programs, alternative and adult education, K-3 early intervention programs, early childhood programs, and medical and counseling services.
  • Continuation funding for Child and Adolescent Health Centers: The governor continues funding for school-based or linked health centers at $3.6 million.
  • Continuation funding for hearing and vision screenings: The governor continues funding for hearing and vision screenings for children at $5.2 million.

Early childhood programs: The governor recommends an increase of $130 million over two years ($65 million in each fiscal year), doubling Michigan’s state-funded preschool program, the Great Start Readiness program (GSRP). Funding for the Great Start block grant to Intermediate School Districts is retained at current levels.

Great Start Readiness Program:

  • Increase in GSRP slots for low-income and at-risk 4-year-olds. Under the governor’s budget, funding for the GSRP would increase from $109.3 to $174.3 million in Fiscal Year 2014. Four-year-old children from families under 300% of poverty, or children with significant risk factors, are eligible for the program, which is in most cases a half-day program. With this additional funding, the number of publicly funded preschool slots (half-day) will increase from an estimated 32,140 in the current fiscal year to 48,076 in Fiscal Year 2014.7 Under current law, GSRP providers can use two slots to provide full-day care for a single child.
  • Increase in per-slot payments. The funding for a GSRP slot would be raised from $3,400 to $3,625—the first increase since the 2007-08 school year, when it was raised by $100 per pupil. GSRP providers claim that actual costs are significantly higher, forcing districts to either subsidize the program through other funds or quit providing services altogether.
  • Elimination of the competitive GSRP program. Budget language authorizing $8.9 million for a separate competitive GSRP program for private sector providers is eliminated. The program is now administered by the Michigan Department of Education, but would instead be under the auspices of Intermediate School Districts, which would be required to ensure that at least 20% of the slots in their area are through other public or nonprofit community-based organizations, as well as for-profit businesses.
  • Policy changes to focus on the lowest-income children. GSRP grantees, presumably Intermediate School Districts, would be required to ensure that at least 90% of the children served with state GSRP funds are from families with incomes of 300% of poverty or less (up from 75%). A sliding fee scale would be required for families with household incomes over 300% of poverty. Statewide, 91% of children currently served by GSRP live in families with incomes at or below 300% of poverty.8
  • Efforts to improve quality and accessibility. The governor requires GSRP providers to participate in the state’s quality improvement program—Great Start to Quality–with a quality rating of at least three out of five stars. Most current GSRP programs are expected to meet the quality standards, but program expansions, particularly into the private sector, may be affected. In addition, GSRP funds could be used for transportation costs—a barrier to preschool for many low-income families—although no new funds are specifically provided for transportation, and those costs alone could deplete the governor’s proposed increase in per-slot payments.
  • No new funding for infants or toddlers, or to expand preschool to 3-year-olds: New GSRP funding would only be available for 4-year-olds. Michigan does not provide state-funded preschool services to 3-year-olds, despite the evidence that the best outcomes for low-income and at-risk children result from two years of preschool. In addition, Michigan has reduced funding for many programs for infants and toddlers–in the face of strong scientific evidence that the first three years of life are critical to brain development and ultimately to educational achievement and life success.

Early Childhood Block Grant: The governor recommends continuation funding of $10.9 million for the early childhood block grant to Intermediate School Districts for parent education and support. Block grant funds are used in part to convene local Great Start Collaboratives and Parent Coalitions.

School meals programs: The governor’s budget recognizes additional federal funding that will be available for free and reduced-priced lunches for low-income children, and based on current program costs, projects a cut in state funding for reimbursing school districts for the costs of providing federally funded school breakfasts.

  • School lunch: The governor’s budget includes an additional $60.7 million in federal funds for the school lunch program–an increase of 14.3%–bringing total funding to $485.7 million. Children are eligible for the school lunch program if their family income is at or below 185% of poverty. In October 2012, nearly 870,000 Michigan children participated in the school lunch program daily.
  • School breakfast: Based on current spending trends, the governor’s budget recognizes a cut of $4 million in state funding to reimburse school districts for the costs of providing federally funded school breakfasts. State funding is reduced by $4 million, from $9.6 million to $5.6 million. In October 2012, more than 360,000 children each day participated in the school breakfast program.9

Adult and vocational education: The governor includes continuation funding for adult education, as well as career and vocational education.

  • Adult education: Adult education funding is maintained at $22 million. State funding for adult education fell from $80 million in 2001 to $20 million in Fiscal Year 2004, and the program has remained underfunded since that time. During the same decade, deep cuts were made in federal funding, making adult education less accessible for many who need it.
  • Vocational education: Continuation funding of $26.6 million is recommended for vocational education.

 

Money Back in Michigan released

Contact: Judy Putnam at (517) 487-5436

Money Back in Michigan offers guidance on tax credits
Filers urged to use free tax help and skip rapid refund centers

[LANSING, Mich.] — A new guide to income taxes released today urges low- and moderate-income Michigan households to file for all available credits this tax season, which can put hundreds or even thousands of dollars back into their pockets.

The 2013 edition of Money Back in Michigan by the Michigan League for Public Policy outlines seven federal and state tax credits available to low- and moderate-income families. The guide also encourages tax-filers to use free tax preparation services and skip expensive “rapid refund” centers that can eat up a portion of the refunds. (more…)

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