Rebuilding the Homestead Property Tax Credit

Gov. Rick Snyder wants to use some of the state’s budget “surplus” (higher-than-anticipated revenues) to restore a portion of the Homestead Property Tax Credit that was cut in 2011.

The governor reduced the HPTC starting in Tax Year 2012, eliminating the credit for 362,000 Michigan families. He now wants to restore the credit to about 100,000 of those families.

This will help struggling families and seniors make ends meet and boost local businesses. The governor’s plan is a far better alternative to income tax reduction proposals that would disproportionately benefit high-income households.

A new fact sheet from the League looks at the impact from the reduction in the homestead credit and explains the proposed changes. The credit fell from an average of $529 to 1.5 million taxpayers in 2011 to an average of $481 to 1.1 million taxpayers in 2012.

The HPTC is the state’s largest refundable income tax credit and is available to those who pay high property taxes or rent in relation to their income. Even when compared with the state’s Earned Income Tax Credit, the HPTC is more than twice as large in terms of total refunded dollars.

The cuts in 2011 have prepared many low-income families for the worst.

But the state’s $1 billion dollars in unexpected revenues over three years had many hoping for the best.

And so did the governor’s State of the State address: “I believe there is going to be some opportunity for tax relief [for those] who wake up every day and pack their lunch to go to work.”

And while some in the Legislature would like to see that tax relief take the form of an income tax rollback, such a move would be negligible to the state’s economic recovery.

Here’s why: If you own a business and have an unexpected surplus, you reinvest that money into your business in order to improve your outcomes.

And that’s just what the HPTC expansion would do for the state’s economy by reinvesting in Michigan’s workers and their families.

– Jason Escareno

EVIP madness

As I was filling out my NCAA bracket last week I had an epiphany—maybe this is how statutory revenue sharing is going to be decided in the future, thanks to a complicated Snyder administration program known as EVIP. For example, municipalities could get ranked and placed into a bracket with one another, advance by submitting more meaningless documentation to the state, and maybe receive enough to provide some of the public safety services they have had to stop delivering.

The odds of how much, if any, statutory revenue sharing a municipality will receive are surely similar to the largest of March Madness office pools.

The governor’s Economic Vitality Incentive Program, or EVIP, was created in 2011 with the goal of increasing accountability and transparency by attaching certain requirements to receive statutory revenue sharing funds.

The real problem with revenue sharing, however, is that the Legislature has fallen short of its promise to provide revenue for such local services as public safety — $6.2 billion short, in fact, over the last decade.

And after attending the Michigan Municipal League annual conference last week I can tell you that a lot of municipalities have had enough. Essential services are not being delivered in many cities, villages, and townships precisely because of the gargantuan revenue sharing cuts over the last decade. Statewide, more than 2,300 police officers and 1,800 firefighters have been lost since 2001.

Municipalities that have been declared to be in a financial emergency by the governor are the same ones that have suffered most from these draconian revenue sharing cuts. There must be some kind of relationship there.

While it is certainly true that municipalities cannot blame the governor for cuts made to revenue sharing before he was elected, they can blame him for EVIP which has only added insult to injury.

EVIP is much maligned by municipal managers as “busy work.” To be fair, EVIP had some altruistic intentions like transparency and government collaboration, but the entire program has forced managers to jump through hoops to get much-needed funds for their municipalities.

All this was bad enough–and then the governor released his 2015 budget that proposed putting even more complicated requirements into EVIP.

The proposal dangles more carrots in front of those municipalities who have received EVIP dollars in the past. It still doesn’t restore revenue sharing near where it should be, and more than a 1,000 cities, villages, and townships would still see nothing.

A change to the EVIP formula was approved by the House General Government Appropriations Subcommittee Tuesday that would distribute the shared revenue more widely based on a population formula, though still not restoring full funding. The change would  restrict how some larger communities will be able to spend their EVIP dollars.

The change has some merit but still puts municipalities at odds with one another because the 496 municipalities already receiving EVIP dollars would see most of the governor’s proposed increase to them go to their neighboring municipalities instead.

Let the EVIP madness begin.

– Jason Escareno

Constitutional amendment: misguided and reckless

A resolution passed by the Michigan House on Thursday calling for a federal balanced budget amendment is misguided and reckless. While a balanced budget amendment may seem appealing on the surface, it would create serious challenges for our economy while threatening the U.S. Constitution.

Requiring a balanced federal budget would threaten critical services such as schools, highways, public safety and more in our state. Michigan has already experienced a decade of cuts in education, local communities and roads. We cannot afford to lose federal dollars that are helping us invest in the important engines of our economy.

Michigan’s recovery from the Great Recession has been slow and painful for many, and a balanced budget requirement would make future recessions longer and deeper. We know that when the economy is struggling and people are losing their jobs that tax revenues fall quickly. But at the same time, the need for supports such as food assistance, Medicaid and unemployment benefits spikes. If the federal government was forced to cut services to align with lower revenues during a recession, it would mean cutting back just when need is at its peak and when the economy needs support.

In addition to the impact on our state and its economy, our federal economy would be at risk. The highly respected forecasting firm Macroeconomics Advisers has said that a balanced budget amendment would be “catastrophic” for the national economy.

A resolution calling for a Constitutional Convention to adopt a balanced budget amendment would bring great turmoil to our country. Once such a convention is called, its delegates could propose changing our Constitution in any way. We would quite literally be throwing our Constitution open to whomever are selected as delegates and,  despite what the proponents say, there is simply no way to predict what might come out of a Constitutional Convention.

And it should be noted that seniors would be especially hard hit under a balanced budget requirement. Social Security and other programs that retirees depend on would be in jeopardy. With a balanced budget amendment, the government could only spend what it collects that same year, not money that has been collected in the past and saved for a specific purpose. That means that Social Security could not draw down its reserves from previous years to pay benefits now, and so could be forced to cut benefits.

This resolution was passed by the House in a different version than what was passed by the Senate, meaning that the Senate will have to vote on the House version. Please contact your senator and ask your senator to reject this dangerous amendment.

– Karen Holcomb-Merrill

 

 

Not a pie-in-the-sky idea

From the League’s First Tuesday newsletter
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  • Life is a bowl of cherries.
  • It’s the pits.
  • That’s a pie-in-the sky idea.

My staff and I have been making a lot of cherry puns over the last week. But it’s all for a serious reason.

We used a cherry pie to show what 20% of Michigan families earning the least would get if we roll back the Michigan personal income tax from 4.25% to 3.9%. Yep, that’s just $12 – enough to buy a cherry pie from the bakery.

For those right in the middle, it would be $88 (that’s about $1.70 a week). What will that get you? Perhaps a used dough mixer.

But the top 1% — who would get a full 17% of the benefits from a rollback — would receive, on average, $2,618. That will buy you a trip for two to Paris, where you can see all the sights and enjoy French pastry at a café.

Along with a bite-sized analysis, the League sent a slice of cherry pie to each lawmaker to serve up an important message: An income tax rollback is a sweet deal for those at the very top but the pits for the rest as it would take away the best opportunity in a decade to reinvest in education, safe communities, roads and the other engines of our economy that were neglected as Michigan struggled with a long economic downturn.

The League is fortunate to have access to an analysis using a sophisticated tax model created by the Washington, D.C.-based Institute on Taxation and Economic Policy.

That allows us to show the potential impact in a very tangible way. And what it clearly reveals is that the proposed income tax rollback plans are bad for Michigan.

Gov. Rick Snyder’s plan to instead pump up the Homestead Property Tax Credit is a far better alternative and will especially help seniors and those with disabilities. Even better, would be to include an increase in the Earned Income Tax Credit for low-income working families or to forgo the tax reductions and instead use the resources to invest in education that has been so severely cut since the Great Recession began.

In fact, a new poll of 600 Michigan residents shows that most agree. They prefer paying for education or road repair over an income tax cut.

Another study by the Economic Policy Institute examines who has benefited from the post-recession recovery. From 2007 to 2009, more than 90% of the economic growth has gone to the top 1% in Michigan, further deepening income inequality.

Those at the top have benefited the most from the economic recovery, and they will benefit the most from the tax rollback.

Please tell your lawmakers to vote NO on rolling back the income tax.

It’s a far sweeter deal to invest in education and other services that will rev up our economy or directly target tax reductions to those who continue to struggle with low wages.

Those would truly be plans deserving of a cherry on the top.

– Gilda Z. Jacobs
_

What’s your agenda for Michigan?

Consider this: This November, voters will elect a governor, all 38 state senators and all 110 state representatives.

Clearly, it’s an important year for our state’s future. The Center for Michigan, described by founder Phil Power as a nonpartisan “think and do tank,” wants your input. What issues do you want elected officials to address on the campaign trail – and in the state Capitol once they are elected?

The League is hosting a Community Conversation, one of many held around the state, from 1 to 2:30 p.m. Monday at the Greater Lansing Housing Coalition, 600 W. Maple St. Lansing.

The Center for Michigan is gathering opinions to summarize and share with policymakers. Topics include the size of government, taxes, investing in roads and bridges, the minimum wage, and education and job training. What services should be increased? Decreased? If you were to increase taxes, which ones would you choose? If you were to decrease taxes, which ones would you choose?

It’s an important opportunity to speak up and make sure your priorities are part of the mix.

There are still a few seats available for the Monday conversation. Please join us to make your voice heard. RSVP to mlogan@mlpp.org by noon Monday.

For more information on community conversations, go to www.thecenterformichigan.net.

– Judy Putnam

EITC is perfect vehicle for the governor

From the League’s First Tuesday newsletter
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Gov. Rick Snyder unveils his fourth executive budget Wednesday and worthy of applause is the fact that he has rejected the across-the-board rollback of Michigan’s personal income tax.

The governor indicated in his State of the State address last month that he wants a tax cut but one that is targeted to working families — those “hardworking Michiganders who get up every day and pack their lunch and go to work.”

The good news is that there is a vehicle already in place to deliver exactly what the governor is seeking: the Michigan Earned Income Tax Credit. As a new fact sheet from the League shows, the tax credit is one of Michigan’s most effective tools for supporting working families and reducing poverty.

Using the $100 million the Snyder administration has targeted for tax relief to increase the EITC would help the very workers the governor wants to help, and it would boost the economy. That could lift the EITC from 6% of the federal credit to 11% of the federal credit. For a working mom with four growing boys, like Paula Fekken of Traverse City, that would mean $300 more for car repairs and other necessities to keep her on the job.

A new report by the Center on Budget and Policy Priorities documents the benefits from state EITCs: They keep working parents on the job and children out of poverty.

Unfortunately, the income tax rollback is gathering steam in the Legislature with a Senate hearing. The tax cut fever is driven by higher-than-expected revenues, nearly $1 billion over three years. It’s a strong election-year temptation as GOP lawmakers look to defend their records for the damage done to working families and seniors in the Big Tax Shift of 2011.

Yet, as the League testified at the Senate hearing last month the income tax rollback disproportionately benefits upper-income households and threatens Michigan’s fragile recovery. In fact, $3 of every $5 would go to those in the top 20% of income.

Increasing the EITC or spending the higher-than-expected revenue to begin restoring Great Recession cuts to education and other key services would also be better economy-boosting routes than the across-the-board income tax cuts.

Either choice would help the governor reward hard-working folks in Michigan.

– Gilda Z. Jacobs

Rolling back progress

The Senate Finance Committee Wednesday approved a bill to reduce the state’s personal income tax rate from 4.25% to 3.9% by 2017, a move that would reduce state revenues by up to $874 million when fully implemented in Fiscal Year 2018.

While the purely political appeal of a tax cut during an election season is obvious, the League testified, based on a recently released report, that the risks to Michigan’s economy far outweigh any benefits. Low- and moderate-income workers will see little in return while the wealthiest taxpayers would benefit the most. (more…)

Priorities Michigan launch

Last week marked the launch of a new organization, Priorities Michigan, a civic engagement and education project aimed at changing the conversation around the state budget and promoting needed investment in public goods.

The Michigan League for Public Policy is proud to be a partner organization on this as we join with others to highlight the effects of over a decade of devastating budget cuts to schools, communities, higher education, infrastructure and human services. (more…)

Making Michigan a true comeback state

You may be hearing a lot about “surplus” revenue as the state budget season kicks off – and more importantly, how to spend it.

Last week, the House Fiscal Agency, Senate Fiscal Agency and Michigan Department of Treasury, put their heads together to give a new prediction. The upshot — nearly $1 billion more than expected. It would have been higher, but Treasury gave a very conservative estimate of $700,000 in unexpected revenue for the three years — the 2013 fiscal year that ended Sept. 30, the 2014 fiscal year that started Oct. 1 and Fiscal Year 2015. (more…)

Two steps forward….

From the First Tuesday newsletter
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Tuesday marked two beginnings: The start of a new state budget year and the launch of the enrollment period for the Health Insurance Marketplace — all while the specter of a federal shutdown begins.

The Oct. 1 start of the state fiscal year represents our big opportunity to address inequities, close gaps and set the investments for the future of Michigan. The new budget has a mixed record in that regard. To be applauded is the impressive bipartisan effort, led by Gov. Rick Snyder, to expand Medicaid in our state. As a result, we will be able to pay for the medical care of hundreds of thousands of uninsured adults in Michigan using available federal dollars. (more…)

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