A big expansion of Michigan’s Earned Income Tax Credit benefits both workers and business. Twelve Michigan chambers of commerce agree. They lay out their case for support of a big expansion of the state’s earned income tax credit in a letter to the Governor and legislative leadership. They write:

Dear Governor Whitmer and Quadrant Leaders,

Our chambers of commerce, representing thousands of businesses who employ countless Michiganders across the state, believe we have an opportunity before us to significantly increase the economic well-being of all Michiganders and build a market economy that as it grows benefits all. We can move closer to this goal by expanding Michigan’s Earned Income Tax Credit (EITC) through legislation (Senate Bill 417) proposed by Senator Wayne Schmidt, and soon to be considered by the Senate Finance Committee. Passage of Senate Bill 417 would prompt a phase-in expansion of Michigan’s EITC over four years, to a 30% match of the federal credit.

We support and applaud this legislation, as it exemplifies a pro-work philosophy and provides financial incentive to increase participation in the workforce; as you are aware, workforce challenges are top-of-mind for the business community, and these challenges are predicted to continue for at least another decade. Nearly six in ten Michigan jobs pay less than what is required for a family of three to be considered middle class ($47,000.) These struggling families are simply hard-workers, getting up every day and working hard to earn a living. What low-wage workers need most is income; not programs. Offsetting some tax responsibility through an expansion of the EITC will help boost earnings for struggling families, providing them an opportunity to step up and out of poverty toward meaningful economic security.

We offer a strong business case for the expansion of Michigan’s EITC:

The EITC encourages work: It is explicitly designed to encourage greater participation in the workforce because it is only available to families that work. In a time when many employers are having difficulty filling available jobs, the EITC has a proven track record of pulling people into the workforce.

The EITC increases local purchasing power: Research indicates that families mostly use the EITC to pay for necessities, repair homes, maintain vehicles that are need to commute to work and, in some cases, obtain additional education. The bigger the credit, the more money spent in locally.

At an estimated cost of a half-billion dollars, the expansion of the EITC should serve as the cornerstone of the state’s economic recovery plan post-pandemic. At the end of three years, as the Federal pandemic funds run out, an overall assessment of the program should be undertaken and determined if the higher level should be continued from general revenue sources.

We urge you to continue an open conversation that results in a winning solution for Michigan families and the Michigan economy, as well. We urge your support of Senate Bill 417. We stand ready to assist you in any way possible towards passage of this critical legislation.

Sincerely,

•Ann Arbor/Ypsilanti Regional Chamber •Bay Area Chamber of Commerce •Detroit Regional Chamber
•Flint & Genesee Group •Grand Rapids Area Chamber of Commerce •Lansing Regional Chamber of Commerce •Michigan West Coast Chamber of Commerce •Midland Business Alliance •Saginaw County Chamber of Commerce •South Haven Area Chamber of Commerce •Southwest Michigan Regional Chamber •Traverse Connect

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Before the pandemic, almost 38% of us were unable to pay for basic needs like housing, food, childcare and transportation according to the Michigan Association of United Ways ALICE data.  That number includes almost one million children who are growing up in households with limited opportunities and often going to bed hungry. It’s not an issue of working hard for a solid day’s wages.  Michigan has too many low-paying jobs with almost 59% paying less than it takes to reach the middle class for a three person household.  It’s limiting our kids’ potential and part of the reason we are losing population as families leave our state for better paying work.

At Michigan Future, we believe that there are structural issues in our economy that will take bold and transformative action to mitigate the impact of growing up in poverty and address the labor shortage that is strangling our recovery, particularly for the small businesses that fuel our communities.  The labor shortage poses a very real risk to small businesses in particular, many closing or limiting hours because they simply don’t have the workers to operate normally. It is time for Michigan to step up with a large expansion of the Earned Income Tax Credit (EITC).  Now.

We are not alone in calling for an expanded EITC.  Republicans and Democrats alike are advocating the use of the EITC to help decrease poverty. An op-ed published last month in The Hill written by Kevin Seifert, a former staff member to Former Republican Speaker of the House, Paul Ryan advocates for a substantial increase in the EITC  to cut poverty in America. We agree.  

According to the CDC, the EITC has kept more children living above the poverty line than any other program in our history.  And it’s more than that.  The EITC rewards work and has a proven track record of incentivizing people back into the workforce.  

Recent jobs data suggests that nationally we have almost two million more jobs than we do workers actively seeking them. There are a lot of reasons for that in Michigan including a lack of jobs paying livable wages but disproportionately the people not returning to workforce are women.  Often they are caring for children with no available childcare or a loved one at particular high-risk in the pandemic.  An increase in the EITC will provide a powerful motivator and adequate resources to help with these hurdles.

Who usually gets the EITC? The typical recipient is a single mother in her early thirties with a high school diploma and fewer than two children. That’s who we are talking about. Evidence consistently suggests that an expanded EITC leads to higher employment rates.  According to the National Bureau of Economic Research, (NBER.org) almost 60% of the increased employment of single moms between 1984-1996 can be attributed to the EITC.  We have a road map for this.

The Michigan legislature and governor are currently evaluating how to appropriate the billions of dollars of funding from the American Rescue Plan Act (ARPA) and a general fund surplus. Michigan has the opportunity to turn the curve in our steadily rising poverty rates with a major investment of our ARPA dollars.  Rather than funding hundreds of programs with discreet impact, let’s invest $1 billion a year and increase the EITC to 60%.  This will take the existing benefit from $150 a year to almost $1500.  An amount that will make a real difference to working families. 

We learned from the rounds of stimulus payments, low-income workers use the money for important stuff like food, education and child care. It enables work and goes right back into our economy, fueling future growth.  It’s time to be bold and plan for the long road to an economy that benefits everyone. 

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Today’s post details our ideas for making sure that more work in Michigan is, indeed, family-supporting work.

Today, the market is simply not creating enough jobs that pay a family-supporting wage. This is not just a Michigan story, but a national problem, caused by structural changes in our economy. Globalization and automation have put downward pressure on pay for lower-skilled work, and owners of capital and advanced education have captured nearly all the productivity gains since the 1980s.

In this new reality, affluent families are doing well, and non-affluent families – the bottom roughly two-thirds of the income distribution – are less secure. Nationally, median household income has been stagnant as the economy continues to grow. Here in Michigan, household incomes fell for the entire bottom half of the income distribution between the mid 1970s and 2013, while just the top 30% of earners saw meaningful income gains.

The recently updated ALICE report put out by the Michigan Association of United Ways, finds that 40% of Michigan households are unable to afford basic necessities. Part of the reason is that the majority of available jobs – both today and for the foreseeable future – are not high-wage. The ALICE report notes that 62% of jobs in Michigan pay under $20 an hour, and roughly 40 percent pay under $15 an hour. Job projections through 2024, put out by the Michigan Bureau of Labor Market Information, predict that 30% of annual job openings statewide will be in occupations with a median income under $25,000, and 72% of annual openings will be in occupations with a median under $56,000, the ALICE threshold for a family of four. Almost by definition, the vast majority of jobs will fail to provide a family-supporting wage. Low-wage work is now a structural part of the Michigan economy.

And market forces alone are not going to fix this problem.

Raising wages through public policy levers

However, while wages are unlikely to increase for lower-skilled workers through market mechanisms, there is much we can do to improve the standard of living for non-affluent families through public policy. Below is a menu of ideas – both public investments and employer regulations – that should be on the table if we’re serious about raising living standards for all Michiganders.

Increase the state Earned Income Tax Credit. Expanding the Earned Income Tax Credit is an efficient way to help non-affluent workers make up for what they’ve lost over the past 30 years. The EITC, by providing a credit based on wages, serves to both raise wages and incentivize work, and politicians on both sides of the aisle have called for its expansion.

Twenty-six states and Washington, D.C., have a state earned income tax credit to supplement the federal credit, with the state credit pegged to a percentage of the federal credit. In 2012, the state EITC in Michigan was reduced from 20 percent of the federal credit to just 6 percent. Reinstating the EITC to 20% of the federal credit would offer a substantial raise to workers who desperately need it.

Preserve Medicaid. Access to quality and affordable health care is a critical component for households to be able to pay for basic necessities. Michigan has taken a major step in the right direction with its expansion of Medicaid eligibility. That progress should be maintained.

Increase the state/local minimum wage. The current federal minimum wage is historically low, at $7.25 per hour, well below the 1968 peak of $9.54 (in 2014 dollars), and miles below that mark when adjusted for cost of living, productivity gains, and the median wage of the United States worker. There’s been a flurry of minimum wage increases in state and local governments in recent years to make up for federal inaction, based on the principle that an individual should not be able to work a full-time job and still not be able to afford basic necessities. Michigan’s minimum wage is currently above the federal floor, but we should have a serious discussion about the right minimum wage target to help more Michigan families afford basic necessities.

It should be noted that while economic theory tells us a higher minimum wage would lead to fewer jobs, either through company relocation or hiring cuts, a large research base finds employer response to reasonable minimum wage increases to be muted.

Improve collective bargaining rights. The decline in collective bargaining, both in the US and particularly in Michigan, has likely contributed to rising inequality and declining wages for the median earner. Michigan should change course and seek to expand, rather than restrict, collective bargaining rights to improve the standing of Michigan workers.

Paid family leave. To make work pay we also need to ensure individuals don’t lose their jobs in the case of a family medical emergency, or birth of a child. Several states have family and medical leave laws to make up for federal shortcomings in this area. Some pay for leave policies through a state payroll tax, while others require employers to provide paid leave.

Closing pay gaps by race and gender. Making work pay means making sure work pays the same for everyone, regardless of gender or race. Minnesota has an appointed pay equity coordinator to hold local units of government accountable to pay discrepancies, and Massachusetts and California have passed laws barring employers from banning conversations amongst employees about pay, to improve transparency. Measures like these would be a start, but any policy that seeks to increase transparency around who gets paid what for what work would contribute to closing these gaps.

Create stability for hourly workers. Another obstacle in the path of low-wage workers, damaging not only their quality of life but also their odds of holding a job, is irregular work schedules. “Just-in-time” scheduling practices to match the supply of workers as closely as possible to demand from customers prevents workers from attaining a dependable income stream and creates unavoidable family-work conflicts. The San Francisco Board of Supervisors adopted a Retail Workers Bill of Rights requiring employers to provide more advance notice for changing work schedules, offer priority access to additional work hours to current employees, and pay workers who did not receive sufficient notice of reduced hours or are forced to wait “on-call.”

Increasing the standard of living for all Michiganders

Both now, and for the foreseeable future, the jobs available to the majority of Michiganders will not be high-paying. The question is how do we use public policy to help improve the standard of living for these individuals, when their standard of living is unlikely to be improved by market forces alone? In the report, we offer some of our ideas. We’re sure there are others, we’re eager to learn more, and we hope you’ll join us in this conversation for how we improve the standard of living for all Michiganders.

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