Moving in the wrong direction

Added September 30th, 2013 by Pat Sorenson | Email This Entry Email This Entry
Pat Sorenson

The latest U.S. Census Bureau data confirms what we all suspected. While there have been improvements in the economy, it has not been enough to float all boats, and state poverty rates, especially for children, remain 25% to 30% above pre-recession levels.

Certainly there have been cuts in state and local services in Michigan that affected low-income families with children, thwarting their opportunities to share in the American dream by earning enough through hard work to move into the middle class. Deep cuts in basic income assistance have forced more children into extreme poverty, exposing them to homelessness and hunger, and creating barriers to academic success. A failure to invest in child care for low-income families has resulted in fewer parents having the care they need to secure and retain jobs that support their children.

And, for too many young people, access to higher education—the key to long-term economic success in this economy—has been closed off, as Michigan has cut state funding for higher education by more than 29% in the last decade, and now ranks 40th in the country in the percentage of full-time students receiving need-based financial grants.

In 2011, Michigan lawmakers adopted an unprecedented tax shift that reduced business taxes by 83%, while increasing taxes on low- and moderate-income residents and retirees. The promise behind this Great Tax Shift was that it would stimulate the economy, produce new jobs, and help families secure a financial foothold. Sadly, this has so far turned out to be more rhetoric than reality. Along with stubborn poverty rates, Michigan’s unemployment rate recently rose again, giving the state the fourth-highest rate in the nation.

Overlooked is the impact of state tax policies on the well-being of families and children. The research is clear: The best predictor of economic prosperity is the state’s success in educating, preparing and retaining a talented workforce, rather than the level of taxation on businesses and higher income earners. Further, tax cuts can damage the state’s economy if they result in the loss of revenues needed to invest in the engines of economic growth, including education and community infrastructure.

A recent study by the nonpartisan Institute on Taxation and Economic Policy found that state tax policies in Michigan and many other states create an uneven playing field for the poorest families, and under the guise of tax reform have fueled rather than abated poverty and economic hardship.

But there is a path to better growth and prosperity. Consistently ignored in the public debate is the power of tax reform in alleviating poverty and providing economic opportunity. The ITEP report points out four proven and effective tax strategies to help low- and moderate-income families, including state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.

Unfortunately, Michigan has been moving in the wrong direction. In 2012, Michigan’s EITC was reduced from 20% of the federal credit to 6%, placing an additional 12,000 children at risk of poverty. In addition, the Homestead Property Tax Credit was revised, limiting its availability to some homeowners, and special exemptions for children and seniors were eliminated.

As described in the League’s Budget Briefs reports, in building the Fiscal Year 2014 budget, which takes effect on Oct. 1, the governor and lawmakers missed opportunities to address the tax policies that are harming low-income children and families, particularly in communities of color.

Now, as they gear up to work on the Fiscal Year 2015 budget, it is critical that front and center are the tax policies that have helped to drive poverty, reduce opportunity, and force cuts in the basic services needed to grow the state’s economy.

— Pat Sorenson

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