The Working Parents Tax Credit (WPTC) is designed to substantially benefit both parents and employers. It is life-changing for parents and benefits employers by providing a strong incentive to work and work more.

The WPTC would provide Earned Income Tax Credit recipient households with earnings of at least $10,000 from work a fully refundable tax credit of $5,000 per child under the age of three and $2,500 per child over the age of three and under the age of six. No household can receive a tax credit for more than three children.

Six-in-ten Michigan jobs pay less than what is required for a family of three to be middle class. The pandemic made clear that these lower-wage workers live paycheck to paycheck not because they are irresponsibly buying unnecessary luxuries, but because they are in lower-wage jobs that leave them struggling to pay for necessities. The reality is that most of those struggling economically, in good times and bad, are hard-working Michiganders who, like us, get up every day and work hard to earn a living. What these lower-wage workers need most is income, not programs.

Expanded state tax credits for recipients of the federal EITC should be the cornerstone of a transformation in how the state supports working families. We should move away from a program-based support system to an income-based safety net that benefits far more working families than any program can, and provides working families with increased income to pay the bills and save for emergencies, retirement, and the kids’ education.

The WPTC is a fair, efficient, and simple tax policy that would help Michigan parents raising young children to help themselves in providing for their families.

More specifically the WPTC is good for parents because it:

• Combats the benefit cliff
• Helps to defray the high cost of childcare
• Provides parents with a flexible cash resource they can put towards their most pressing priority
• Can reach far more households than any program can
• Is easy to apply for and quality for

Combatting the benefit cliff

The per child credit is an essential feature of the proposal. For most government benefits, including the federal EITC, benefits decline as one earns more income, contributing to the so-called benefit cliff. Our detailed analysis found that households with children realized very little income gain as declining benefits and increasing taxes steeply offset increased earnings. This is particularly true for households with income between $20,000 and $40,000. Where households net as little as 14 cents from each additional dollar earned.

The best antidote for this high tax rate cliff is a flat per child credit that does not decline as you earn more money. The Working Parent Tax Credit is designed so that recipients will be able to keep a substantial proportion of increases in work earnings.

Paying for childcare

This proposal is targeted at households with young children for a reason. The Michigan Association of United Ways estimates the cost of paying for basic necessities for a two-adult household with no children is $41,106; for a household of two adults and two school age children it is $64,752; and for a household of two adults with two preschool children it is $73,488.

The cost of childcare is the main driver of the increased cost of raising preschool children. The WPTC allows parents to decide what is the best way to provide childcare. It is not limited to sending a child to a formal childcare center or program.

Trusting parents to decide family priorities

The WPTC is flexible. The credit can be used to pay for any and all necessities. It is a based on a belief that parents are the best deciders of what matters most to their family’s wellbeing. For some families it might be childcare, for others it could be housing, food, or transportation.

Assisting far more households than any program can

There is no program/supply side solution the state can afford that can deal with the childcare challenge at scale. The current state childcare subsidy program serves around 30,000 children. The governor’s Tri-Share program – which asks employers, parents, and the state to share the cost of care – serves fewer than 1,000 children. The WPTC will serve around 250,000 children.

Easy to apply for and quality for

The reality is that far too many working households are shut out of benefits they are eligible for by a confusing and limited scale system of safety net programs. All eligible parents need to do to receive the WPTC is file their taxes. If you receive the EITC, have $10,000 in household work earnings, and have children under the age of six, you will receive the full working parents tax credit.

The Working Parents Tax Credit is a win for Michigan families raising young children, employers, and the overall state economy. It meets the criteria of good tax policy. It is fair (targeting relief to those most in need), efficient (tied directly as an incentive to work), and simple (no new bureaucracy). Now is the time to enact a Working Parents Tax Credit.

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The Working Parents Tax Credit (WPTC) is designed to substantially benefit both parents and employers. It is life-changing for parents and provides at scale, strong incentives to work and work more at a time when employers are having difficulty finding reliable workers.

The Working Parents Tax Credit (WPTC) would provide Earned Income Tax Credit recipient households with earnings of at least $10,000 from work a fully refundable tax credit of $5,000 per child under the age of three and a fully refundable tax credit of $2,500 per child over the age of three and under the age of six. No household can receive a tax credit for more than three children. It is estimated that the WPTC would benefit Michigan households raising 250,000 children under the age of six.

The WPTC benefits employers, by providing an at scale solution to three substantial impediments to working and working more: the difficulty low-wage workers face in paying for childcare, which the U.S. Chamber of Commerce Foundation estimates costs the Michigan economy nearly three billion dollars annually; the benefit cliff; and the reality that far too many working households are shut out of benefits they are eligible for by a confusing and limited scale system of safety net programs.

The Working Parents Tax Credit is only for people who are working – it’s helping people get back in the game, providing an incentive to go to work. That’s why employers like it.

The WPTC is pro work, both an incentive to work and a reward for work. The credit is designed to encourage individuals to enter the labor market. The credit is available only to households with at least $10,000 in work earnings.

Only EITC recipients are eligible for the WPTC. The EITC has a proven track record of pulling people into the workforce. In a comprehensive 2020 study on the employment effects of the EITC Diane Whitmore Schanzenbach and Michael R. Strain found:

The Earned Income Tax Credit (EITC) is the cornerstone anti-poverty policy in the United States. Designed to fight poverty by encouraging and rewarding work, decades of research on the EITC has found that the program meets its goals by increasing employment among targeted women, and by successfully raising their annual incomes, lifting millions of families out of poverty.

The cost and availability of childcare and the real and perceived loss of benefits as one works more are two big impediments to lower-wage workers working. The WPTC is designed to deal with both at scale.

The per child credit is an essential feature of WPTC. Our detailed analysis of the benefit cliff found that households with children realized very little net income gain from increased work earnings, as declining benefits and increasing taxes steeply offset the increase in earnings. This is particularly true for households with income between $20,000 and $40,000, who net as little as 14 cents from each additional dollar earned.

The best antidote for this high tax rate cliff is a flat per child credit that does not decline as you earn more money. The Working Parent Tax Credit is designed so that recipients will be able to keep a substantial proportion of increases in work earnings.

Focusing on households raising young children is also an essential component of the WPTC. The Michigan Association of United Ways estimates the cost of paying for basic necessities for a two-adult household with
no children is $41,106; for a household of two adults and two school age children it is $64,752; and for a
household of two adults with two preschool children it is $73,488.

The cost of childcare is the main driver of the increased cost of raising preschool children. For households raising young children, the Working Parents Tax Credit provides a life-changing boost in income which can help families defray the cost of childcare. And because the credit goes to parents, it allows them to determine the childcare arrangement that works best for them and their children.

The WPTC is also flexible, so that it allows parents to pay for other necessities that is keeping them from work

There is no program/supply side solution the state can afford that can deal with the childcare challenge at scale. The current state child care subsidy program severs around 30,000 children. Tri-share fewer than 1,000. The WPTC will serve around 250,00 children.

The WPTC also benefits local businesses. The WPTC will primarily be spent buying goods and services from local businesses. Research indicates that families mostly use the EITC to pay for necessities, repair homes, maintain vehicles that are needed to commute to work, and in some cases, obtain additional education or training to boost their employability and earning power. Because the WPTC provides a flexible cash resource to families, that they can spend on whatever need is most pressing for their household, these dollars will be spent in much the same way. The credit will pump up to $935 million into local economies statewide.

The Working Parents Tax Credit is a win for Michigan employers, families raising young children, and the overall state economy. It meets all the criteria of good tax policy. It is fair (targeting relief to those most in need), efficient (tied directly as an incentive to work), and simple (no new bureaucracy).

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If Michigan had the same share of middle-class jobs as Massachusetts, it would be the equivalent of adding nearly 800,000 middle-class jobs to the state economy. Michigan––a state that once attracted people from across the planet to get high-wage jobs––is now a state where seven in ten Michigan jobs pay less than middle-class wages ($65,000 and above). In Massachusetts five in ten jobs pay middle-class wages.

What accounts for this 800,000 high-wage jobs gap? Overwhelmingly it is a much higher B.A. attainment rate. High prosperity states and regions, first and foremost, are places with a high proportion of adults with a bachelor’s degree or more.

Massachusetts is the nation’s most prosperous state primarily because it has great schools and a talent magnet city. The best K-12 system in the country, great four-year universities, plus a city where recent college grads want to stay and come from elsewhere to live after college.

Schools and cities are the foundation of prosperous states and regions. This is an economy where college educated talent attracts capital. And vibrant cities attract college educated talent. Michigan unfortunately has neither and it has become one of the nation’s poorest states.

Where talent––particularly young talent––goes, high-growth, high-wage, knowledge-based enterprises follow, expand, and are created. Because talent is the asset that matters most to high-wage employers and is in the shortest supply, the new path to prosperity is concentrated talent.

All the traditional items we consider to be vital to economic development and state and regional prosperity––business taxation, the regulatory regime, business assistance programs and incentives, entrepreneurship and growing business supports, technology transfer, sub B.A. post secondary training, on and on and on––are not what distinguishes Massachusetts from other states.

What does distinguish Massachusetts from us and other states is the proportion of adults––particularly young adults––with a B.A. or more. Massachusetts is first in the nation in both categories. In Massachusetts, 47.8 percent of adults over the age of 25 have a bachelor’s degree or higher. In Michigan 32.7 percent. This picture gets worse when you look at young people. 57.2 percent of 25-to-34-year-olds in Massachusetts have a bachelor’s degree or higher. In Michigan 37 percent. The B.A. attainment gap between the two states is widening, not shrinking.

This large B.A. attainment gap leads to a large prosperity gap. In Massachusetts the per-capita income is $93,927. In Michigan, a low B.A. attainment and low-prosperity state, the per-capita income is $63,221––a full $30,000 lower than Massachusetts.

In 1980, the two states had roughly the same per-capita income. But a large prosperity gap grew over time, both because the B.A. attainment gap between the two states grew, and because the B.A. wage premium has grown.

The lesson Massachusetts should teach us is if Michigan does not substantially increase its B.A. attainment rate––particularly among non-affluent students––and create talent magnet cities, we will continue to get poorer compared to the nation no matter how good everything we label economic development is. Schools and cities are the foundation of prosperous places, everything else at best is icing on the cake. 

What we have been doing to increase the economic well-being of Michiganders has not worked. A small course correction will not be sufficient––transformational change in our approach to the economy and education is required if we are to achieve an economy that as it grows benefits all.

To create a high-wage Michigan economy we, first and foremost, need to strengthen and create more vibrant neighborhoods in our cities that attract and retain young talent and we need great schools explicitly designed to increase the share of young Michiganders who pursue and complete a four-year degree.

All of this adds up to the reality that there are two high-impact levers available to state policymakers to reverse Michigan’s decades-long economic well-being decline:

• First, create transit-rich, vibrant central cities that are competitive with America’s young adult talent magnet regions.
• Second, create schooling from birth through college that substantially increases Michigan student’s four-year degree attainment.

If Michigan does not concentrate college educated Generation Z here, and does not substantially increase four-year degree attainment of Michigan students––our state will continue to get poorer compared to the rest of the nation.

Getting younger and better educated requires making bold public investments in place and education––the drivers of today’s economy. The alternative is clear: Michigan will continue to get older and poorer.

The post How to close the 800,000 high-wage jobs gap appeared first on Michigan Future Inc..

For nearly two decades we have recommended that Michigan make Minnesota the model for its economic policy. We chose Minnesota because year after year after year it is the most prosperous Great Lakes state. It not only is a neighboring state, it also is a cold weather state and a non-costal state.

The recently released 2023 state per capita income data makes clear once again that Minnesota has the economy Michigan should want to have. Michigan is 39th in per capita income at $61,144, 12.4 percent below the national average. Minnesota is 12th in per capita income at $72,557, 3.9 percent above the national average. All a Great Lakes state best.

The two Great Lakes states that policymakers of both parties almost always compare Michigan to––Ohio and Indiana––are also low-prosperity states. Ohio is 37th in per capita income at $61,495, 11.9 percent below the national average. Indiana is 38th in per capita income at $61,243, 12.3 percent below the national average.

Minnesota also is the Great Lakes state with the highest proportion of adults with a B.A. or more. It is 11th in the nation. Michigan is 34th, Ohio is 37th, Indiana is 42nd. The proportion of adults with a B.A.or more is probably the best predictor of a state’s per capita income. Because college-educated talent is the asset that matters most to high-wage employers.

What has Minnesota done to become the Great Lakes’ most prosperous state? In 2014 we asked Rick Haglund to answer that question. His report, State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Helped it Achieve the Best Economy Among Great Lakes States, is as valid today as it was a decade ago. Yes the data in the report needs updating, but Rick’s description of the path Minnesota has taken for more than five decades is still accurate today.

Rick’s conclusion:

Lawmakers and governors in many states, including Michigan, have focused primarily on cutting taxes and shrinking the size of their governments as the path to prosperous economies. As this report has shown in detail, Minnesota has traveled a different path. There is no question Minnesota is a high tax state—as stated earlier, its residents paid $2,309 (updated for 2023) more than Michigan residents in state taxes alone.

But it has largely invested that additional revenue in services and investments that matter in a knowledge-based economy. An educated workforce, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net for those making the transition to a global economy all matter in creating a prosperous state.

Minnesota has made those necessary investments and enacted policies making the state welcoming to all. It really shouldn’t be surprising, then, that it has the strongest economy in the Great Lakes region and one of the most vibrant in the country.

Maybe most important is what isn’t part of the Minnesota playbook:

• Minnesota did not lower taxes. In fact as Rick documents, in 2013 when Michigan was slashing business taxes, Minnesota raised taxes on companies and the wealthy. In 1980 Minnesota had the 6th highest state taxes per capita in the country. Michigan ranked 13th. Minnesota’s state taxes per capita were 122 percent of Michigan’s. In 2023 Minnesota had the 8th highest state taxes per capita in the country. Michigan ranked 34th. Minnesota’s state taxes per capita were 162 percent of Michigan’s.
  
• Minnesota did not slash its safety net. As Rick wrote: “Many states have cut benefits to the poor and unemployed in the belief that these payments dissuade people from looking for paid work. Minnesota takes a different view. It has created one of the strongest safety nets in the country, spending generously on benefits to help those who have lost jobs or been stricken by poverty get back on their feet. That protective net has not trapped Minnesotans and turned them into a bunch of government-dependent slackers. Far from it.”
  
• Minnesota does not offer big incentives for economic development projects. Read the Minnesota Economic Development Resource Guide and you will not find any big incentive program like SOAR, Michigan’s new billions of dollars business incentive program.
  

Michigan has, of course, done the exact opposite. On a bipartisan basis accepting that high taxes, particularly on businesses are job killers, the state has anchored its economic development playbook on cutting taxes for at least three decades. And, also on a bipartisan basis, enacting one version after the other big economic development incentive programs. As well as slashing the state’s safety net in part on the belief that a more generous safety net discourages people from working.

At its core the Minnesota playbook for economic success has been higher taxes used for public investments to compete for talent by offering good schools from birth through colleges and
creating places where people want to live by offering high quality basic services, infrastructure and amenities.

Minnesota focus on making public investments in education from birth through college and creating high quality of living communities combined with being welcoming to all is the foundation for its economic well-being success. Minnesota has developed a policy playbook that makes preparing, retaining and attracting talent its economic development priority one. That is exactly what is needed in today’s economy where talent attracts capital.

The post Michigan in 39th, Minnesota is 12th appeared first on Michigan Future Inc..

Thank you Chair Irwin and members of the Senate Housing and Human Services Committee for the opportunity to talk to you about child care and our working parents tax cut recommendation.

Thank you Senator McDonald Rivet for your leadership on the issue.

For more than three decades, Michigan Future, Inc. has championed common sense and forward-looking policy initiatives grounded in data analysis, rather than ideology. Our primary objective is the restoration of Michigan’s status as a high-prosperity state with a thriving middle class.

Central to our mission is the establishment of a market economy that benefits all Michiganders. We are dedicated to developing an economy where every worker in Michigan enjoys wages and benefits that allow them to meet their financial needs, save for the future, and invest in their children’s education. Michigan’s success is dependent on ensuring our residents can thrive. As Michigan’s economy grows, so should the income of Michigan workers. It’s that simple.

To help meet that goal three years ago, the Michigan Future Board proposed that the state expand its Earned Income Tax Credit (EITC) tenfold. Going from a six percent match of the federal credit to sixty. The rationale for this transformational recommendation was our belief that Michigan needed a completely new approach to improving the economic well-being of working families. That far too many struggling working families was an ongoing reality of the Michigan economy.

Nearly six-in-ten Michigan jobs pay less than what is required for a family of three to be middle class. These low-wage workers live paycheck to paycheck not because they are irresponsibly buying “unnecessary”luxuries, but because they are in lower-wage jobs that leave them struggling to pay for necessities. The reality is that most of those struggling economically––in good times and bad––like us get up every day and work hard to earn a living.

At Michigan Future we believe the best way to help these hard-working Michiganders is with income, not programs. Parents are the best decision makers for what is best of their families and their children.

2023 saw a historic expansion of the state’s match of the federal EITC with the enactment of the Working Families Tax Credit. The Working Families Tax Credit is a huge first step in moving to an income-based support system for Michigan’s working ALICE households.

But there is more that needs to be done. The data are clear: you cannot have an economy that benefits all without increasing the income of lower-wage workers––particularly those raising young children––in their current jobs.

As a next step, we recommend enactment of a life-changing working parents tax cut: a substantial fully refundable tax credit for each child under the age of six for EITC recipient households.

A per child tax cut is the only way to help Michigan families raising young children at scale. A per child credit up to age six would help Michigan families raising approximately 250,000 children. By comparison the state’s current child care subsidy serves around 40,000 Michigan children. The tri-share program is currently serving around 700.

And it is the best way to confront three seemingly intractable challenges that have bedeviled policymakers for decades: the benefit cliff, the difficulty of lower-wage workers to pay for child care and far too many working households shutout of benefits they are eligible for by a confusing, bureaucratic system of safety net programs.

Our detailed analysis of the benefit cliff found that many households with children realized very little income gain as they earn more at work as declining benefits and increasing taxes steeply offset increased earnings. This is particularly true for households with income above $20,000. Where households net as little as 14 cents from each additional dollar earned.

The best antidote for this high tax rate cliff is a flat per child credit that does not decline as you earn more money. The working parents tax cut is designed so that recipients will be able to keep a substantial proportion of increases in work earnings.

Focusing on households raising young children is also an essential component of the proposal. The Michigan Association of United Ways estimates the cost of paying for basic necessities for a two-adult household with no children is $38,508; for a household of two adults and two school age children it is $62,928; and for a household of two adults with two preschool children it is $72,792. The cost of childcare is the main driver of the increased cost of raising preschool children.

And unlike benefit programs, the working parents tax cut will be easy to qualify for and apply for.

Expanded state tax credits for recipients of the federal EITC should be the cornerstone of a transformation in how the state supports working families. Moving away from a program-based support system to a cash-based safety net that benefits far more working families than any program can and that provides working families with increased income to pay the bills and save for emergencies, retirement, and the kids’ education.

The working parents tax cut would be life changing for households raising young children. Our recommendation encourages work and provides a significant boost in income. Unfortunately, the challenge that has long faced too many working Michigan families is not bad decision-making, but the lack of sufficient income that can open doors of opportunity. A working parents tax cut would empower parents to spend the money however best meets the needs of their family. It will be easy to apply and qualify, and a tax cut will benefit far more working families than any program could.

The working parents tax cut also benefits employers both by pulling more parents into the labor market and by increasing hours worked. The economic benefit is huge: the U.S. Chamber of Commerce Foundation estimates the difficulty of lower-wage workers to pay for childcare costs the Michigan economy three billion dollars annually.

We fully understand the implications of a big new tax credit. At its core, the state budget is a statement of our values. We believe that the state’s core economic value should be rising income for all: an economy that as it grows benefits all. We value work and we value work where anyone who works hard earns enough to pay for the basics and to save for emergencies, retirement, and the kids’ education.

By both incentivizing working and rewarding work, a working parents tax cut is a win for Michigan families raising young children, employers, and the overall state economy. Our recommendation would help fill jobs, boost small businesses, expand our economy, and give a chance for hundreds of thousands of Michigan parents to make a better life for themselves and their children.

A working parents tax cut meets all the criteria of good tax policy. It is fair (targeting relief to those most in need), efficient (tied directly as an incentive to work), and simple (no new bureaucracy).

The post My Senate child care hearing testimony appeared first on Michigan Future Inc..

Our goal is rising income for all: creating a Michigan economy that as it grows benefits all. Where the measure of economic success is household income based, rather than unemployment and economic growth rate based. Our work is focused on getting a data-driven, big-change economic well-being state policy agenda enacted in a purple state. Where the development and promotion of the agenda is done by cross-sector, cross-ideology individuals and organizations with clout. Starting with the Michigan Future Board.

Keeping with the same lean staffing model that has defined our work for the past three decades, we focus our effort and leadership on informing and mobilizing a diverse set of partners to create and move a rising income for all policy agenda. This work is a multi-year endeavor.

Origins

For more than three decades Michigan Future, Inc has been a voice of forward-looking action, based in data and focused on returning Michigan to a high-prosperity state. Our aim is rising income for all, with an economy where all Michigan workers have income and benefits that allow them to pay the bills and save for retirement and their children’s education.

Too many Michigan communities and households are struggling. Yet our public and political
discourse continues to focus on the wrong issues, clinging to the impossible idea of making
the old economy work again. MFI is working to bring our research and recommendations to a
larger population of community leaders and reframe the public conversation so that our
public policy will improve the economic well-being of all Michigan families.

Michigan politics have changed in the thirty three years since the inception of MFI. Political leadership has become more and more entrenched in ideological issues that ignore the economic realities of most Michigan families. There is a notable absence of pragmatic legislative agendas that are capable of impact at scale across geography, race and class.

How do you activate political change to shift the economic trajectory of Michigan? This is the
question at the core of the work of Michigan Future. Our focus is to ignite transformative redesign of Michigan’s economy with a high-impact agenda for all Michigan households. We work at the system level for broad scale, sustainable solutions. We work on the hard things with an unshakable belief that we can bend the curve and construct an economy that works for everyone. Our question is not “Is it possible?”, but rather, “What will it take?”

We remain committed to work with the singular focus of increasing prosperity for all Michigan
households and build coalitions of influential people with something to contribute that
result.

Agenda

Why are so many Michigan households struggling? There are three big challenges:1) Too many
low-paid jobs; 2) Too few with the education to get a good-paying job and career; and 3) Too
low talent concentrations to retain, attract and grow high-wage employers.

Our Rising Income for All agenda addresses these challenges through four high-Impact policy levers:

1. Make rising income for all the primary mission of state economic policy.
2. Increase income for low-wage workers through an expanded, cash-based safety net plus health coverage for all.
3. Prepare all Michigan children for high-paid forty-year careers by making the 6C’s the foundational skills for all students from birth through college.
4. Increase talent concentrations and attract high-paid jobs by creating places where talent want to live and work.

The Action Plan

The quality of our research and the caliber of our bipartisan board gives MFI a unique ability
to bring leaders together across ideological and geographic divides and across sectors for in-depth conversations on how to deal with the economic challenges Michigan households are facing and will face tomorrow.

This is how our agenda was developed, co-owned and embraced by so many leaders. The interest is strong and encouragingly statewide, bi-partisan and across sectors.

We have learned that co-ownership requires a chance to work over time and in-depth with a
diverse set of leaders. Convening deep-dive activities builds on our ability to engage
economic and community leaders and policy makers around the need for an income-based economic policy.

Our role is to power the passage of the agenda by convening politically-influential thought
leaders from all areas of the state and diverse political ideologies willing to dig in as co-owners
of the agenda and exert their personal and professional capital to frame the detail, design the roadmap to legislative enactment and ultimately directly advocate for its passage.

Our approach to policy development and implementation coupled with our organizational
design is intentionally structured to give us the best chance in a purple state of catalyzing a rising income for all agenda and creating a Michigan economy that as it grows benefits all.

Progress

1. Earned Income Tax Credit: Here the progress has been transformative. Not only were we the catalyst for getting the largest expansion of the EITC introduced, but we led the organization of an unprecedented huge cross-sector, cross-ideology coalition in support of the legislation. In large part, it was that coalition that was successful in getting a historic expansion of the credit enacted.

Expanding the state’s EITC fivefold––from a six to thirty percent match of the federal credit––puts an estimated four hundred million dollars in the wallets of around 625,000 lower-wage working households year after year after year.

At the core, our strategy is centered around organizing broad cross-ideology, cross-sector support. The lobbying/advocacy comes from the members of the coalition. The EITC experience confirmed for us that our purple state strategy was the right approach to actually enacting––as opposed to just proposing––a rising income for all state policy agenda.

2. The Working Parents Tax Cut: Following enactment of the EITC expansion, the Michigan Future Board recommended as the next step to building a cash-based safety net enactment of a Working Parents Tax Cut (WPTC). It is designed to deal at scale with child care affordability challenges and the so-called benefits cliff. The credit would provide EITC recipient households an annual refundable credit of $5,000 for each child up to the age of three and an annual $2,500 refundable credit for each child from three up to the age of six. It is estimated to provide around 250,000 lower-wage working households with a nearly one billion dollars annual increase in income.

We have organized a broad inaugural cross-sector, cross-ideology support coalition which will lead the advocacy efforts on the WPTC. And we have conducted a statewide poll on the proposal which demonstrated overwhelmingly public support for the proposal and the general concept of helping parents with income rather than programs.

3. Michigan Talent Partnership: Our recommendation for central city neighborhood talent concentration funding was included in the Fiscal Year 2024 budget as a five million dollars pilot program for the cities of Detroit, Grand Rapids and Lansing. And was expanded to a statewide $25 million competitive grant program in the Fiscal Year 2025 budget.

The initiative is a central component of our focus on rising income for all as it is designed to grow high-wage Michigan jobs. Michigan’s core economic challenge is that we are now a low-wage state with six in ten Michigan jobs paying less that what is required to be a middle class household of three. High-wage jobs are increasingly concentrated in knowledge-based industries. And the asset that matters most to knowledge-based employers is college-educated talent, particularly young professionals.

This is an economy where talent attracts capital. And quality of place attracts talent. High-prosperity states and regions are characterized by both high concentrations of knowledge economy employers and high concentrations of adults with a B.A. or more. And that requires transit-rich vibrant central cities because that is where many recent mobile college graduates are choosing to live after graduation. The Michigan Talent Partnership is designed to make public investments in central city public spaces to create Michigan neighborhoods that are national talent magnets.

4. Research and communications: The core of MFI’s work continues to be cutting-edge research on the Michigan economy and labor market. With a particular focus on the economic well-being of Michigan households.

We rereleased our 2004 A New Path to Prosperity? report which predicted that if Michigan did not become more knowledge economy concentrated and a place where young talent chose to live after college that we would become poorer compared to the nation. That is exactly what happened: Michigan has declined from 16th in per capital income in 1999 to 39th in 2022.

The 2024 report update received extensive media coverage. And led to the opportunity to present our findings and policy recommendations to the Growing Michigan Together Council, the Senate LEO appropriations subcommittee and the Senate Economic and Community Development Committee.

Curent Work

Our strategy to continue work on our rising income for all policy agenda over the next several years is rooted in three general principles:

• Use two-tier labor market analysis to change the economic mission and economic and education policy of the state;
• Recruit cross-sector, cross ideology champions to create the specifics of a rising income for all policy agenda and advocate for its passage; and
• Assemble and support coalitions of highly-influential policy leaders in key sectors and
  geographies to increase the likelihood of passage in a purple state.

Our work will concentrate on:

1. Continuing our cutting-edge research on the Michigan economy and labor market
2. Enacting a Working ParentsTax Credit.
3. Implementation of the Michigan Talent Partnership and making it an ongoing program
4. Developing specific education policy recommendations. Designed to create an education system that prepares all students for a good-paying forty-year career. Which means making sure all students (1) learn about all good-paying career opportunities, (2) develop rigorous generalists/6Cs/rock climbing foundation skills and (3) leave high school prepared for B.A. completion (if they choose that path).
5. Changing the narrative about the Michigan economy and labor market. Our biggest challenge to implementing a big-change rising income for all policy agenda is by and large––on a bi-partisan basis and across sectors––those with clout do not share our analysis of and vision for the Michigan economy and labor market: the need to transition to a knowledge-based economy and to prepare, retain and attract talent as economic development priority one.

Our belief is that Michigan has gone from a high- to a low-prosperity state due in large part to choices Michigan has made to not adjust to new realities. That the decline is due in large part to trying to make an old economy that made us prosperous in the past, but no longer exists, work again. That old economy vision and strategy will insure that Michigan remains a low-prosperity state with a high proportion of households––and an even higher proportion of Black and Brown households––struggling to pay for necessities.

Figuring out how you build a shared vision and strategy based on new realities is probably the most important work we need to do going forward.

The post Michigan Future’s origins and current work appeared first on Michigan Future Inc..

The coalition sent a letter to the governor, lieutenant governor, and every member of the state house and senate in support of a large refundable tax credit for working parents to help pay for basic necessities, especially the high cost of childcare. The proposed credit would go to households eligible for the federal Earned Income Tax Credit with children under six, and would be worth $5,000 for each child under three and $2,500 for each child between the ages of three and six.

The coalition notes in the letter that this kind of targeted refundable tax credit has several advantages over other efforts to support working households. The first is scale. Most social safety net programs reach only a small fraction of households in need. For example, the state’s childcare subsidy program reaches just 40,000 children in a given month, out of an estimated 250,000 children who are income-eligible. A refundable tax credit for working parents with young children would reach the vast majority of those 250,000 children.

The second advantage is ease of access. Safety-net programs are notoriously difficult to apply for, with applicants forced to navigate a web of bureaucracy in order to obtain aid. By contrast, to receive our proposed credit eligible applicants would simply need to file their taxes.

And the third advantage is flexibility. Most safety-net programs provide “in-kind” support – essentially vouchers to purchase a particular good: SNAP benefits for food, housing vouchers for housing, childcare subsidies for childcare. But these restricted benefits won’t always meet a family’s most pressing need; you can’t use SNAP benefits to pay the utility bill. The proposed tax credit would send cash to working households with young children, that they can put towards whatever makes the most sense for their family.

Senator Kristen McDonald Rivet and Representative Cynthia Neeley have introduced bills based on the proposal in the state senate and house respectively, and those bills can be found here (senate bill/house bill).

To view the letter and the list of current supporters, click here. If you’re interested in learning more, and adding your name to the list of supporters, go to risingincomeforall.org

The post The Coalition for a Working Parents Tax Cut appeared first on Michigan Future Inc..

The removal of pandemic-era safety net programs was so broadly felt because the pandemic safety net was fundamentally different from our traditional safety net. Whereas our traditional safety net is means-tested (focused only on those with low incomes), program-based (meaning you have to apply to receive assistance), and in-kind (i.e., SNAP benefits for food, housing vouchers for housing, etc.), the pandemic-era safety was nearly universal, was cash-based, and was largely distributed through the tax code. What this means is that while most traditional safety net programs serve a small share of non-affluent households, the pandemic-era safety net served the vast majority of non-affluent households. In other words, the pandemic-era safety net achieved scale.

This idea of scale is worth dwelling on in light of the latest ALICE update. Because while some believe we have a vast social safety net that adequately serves those households in need, the reality is most safety net programs serve only a small fraction of households facing material hardship.

The chart below illustrates the limited reach of much of our social safety net. The first bar shows the 1.67 million households in Michigan with incomes under the ALICE threshold. The remainder of the bars show how many households receive assistance from various safety net programs meant to help pay for household necessities, like food (SNAP), housing (Housing Choice Vouchers), and childcare (state childcare subsidy, known as the child development and care program, or CDC).

As one can see, most of these programs struggle to get to any sort of scale. SNAP benefits cover a large number of households because SNAP is federally funded and, particularly for households with children, is the one element of our safety net that comes close to being an entitlement, where anyone who is eligible is served. Similarly, the WIC program (or the Special Supplemental Nutrition Program for Women, Infants, and Children), which provides supplemental nutrition supports for pregnant women and young children, gets to decent scale through sufficient federal funding to cover all eligible participants.

But beyond those two cash-like, near-entitlement programs, the only piece of our social infrastructure that gets anywhere close to covering a meaningful share of the ALICE population is the Earned Income Tax Credit and its companion state credit here in Michigan known as the Working Families Tax Credit. Nearly 700,000 Michigan households receive the federal and state EITC.

Aside from these elements, it’s nearly impossible to find a safety net program that gets to anything approaching the scale of need. For example, housing is often the most significant cost facing non-affluent households; yet the central program designed to help defray the cost of housing – the Housing Choice Voucher program – reaches just 55,000 Michigan households, or roughly 3% of all ALICE households. So few households are served both because the program is notoriously underfunded, and because families often face a whole host of obstacles in actually using their vouchers to secure a place to live.

Another example is childcare. Childcare is very expensive. The average cost of center-based childcare in Michigan is more than $11,000 annually – a figure that is nearly impossible for non-affluent families to pay out of pocket. Yet the central program for helping families pay for care reaches just 24,000 households in a given month. As is the case with housing vouchers, the limited scale of the childcare subsidy program is the result of inadequate funding and the bureaucratic implementation hurdles that accompany nearly any social service program.

The list goes on. Roughly 75,000 households (~4% of ALICE households) receive assistance with their utility bills through the Michigan Energy Assistance Program (MEAP) and the State Emergency Relief (SER) Program. Just over 11,000 households (0.6%) receive cash assistance, or what used to be known as cash welfare. Putting it all together, one is left to conclude that hundreds of thousands of households unable to meet their basic needs receive no assistance from government to help them do so.

Refundable tax credits can get to scale

The inability of most government programs to serve all those in need is one reason we have been pushing to expand the use of fully refundable tax credits here in Michigan. As noted earlier, aside from fully funded federal programs, refundable tax credits are the only way we can deliver assistance to households in need, at scale. To qualify for most public assistance programs, applicants need to make appointments with caseworkers, fill out long applications, verify their income in a dozen different ways, report any changes in income, and not forget to renew their benefits every year. Because most public assistance programs are not funded at levels high enough to serve all those in need, even if one gets through the application process and qualifies for a program, there is no guarantee they will receive assistance. And then even if one does receive assistance, some programs – like the housing choice voucher program and child development and care program – come with additional implementation barriers that make it difficult for the person in need to access that assistance.

Distributing aid as cash, through the tax code, can avoid many of these barriers that prevent programs from getting to scale. There are no implementation barriers, because households are simply mailed a check. Because it’s structured as a tax cut or refund, all those who qualify will receive assistance. And while filing one’s taxes is not painless, its preferable to applying for social assistance programs. Research has shown that the act of filing taxes instills pride and a feeling of civic participation, whereas applying for public assistance can engender feelings of shame and embarrassment. Research has also found that roughly 80%of households eligible for the EITC actually file their taxes and receive the EITC. While this leaves a lot of room for improvement (20% of households missing out on benefits they qualify for is still a policy failing), this rate of participation in the EITC is far higher than that of most other public assistance programs, for the reasons noted above (the one exception, again, is SNAP, where the share of eligible households participating is quite high). And by supporting the work of non-profit tax preparation sites, like the Accounting Aid Society, we can push this figure higher.

The point is, if we hope to reach a large share of non-affluent households with additional assistance, the best way to do it is through further expansions of refundable tax credits. Programs are hard to apply for, narrowly defined, and rarely fully funded. Refundable tax credits are easier to apply for, cash-based (can be used for a broad array of needs), and can get to scale. And when 41% of Michigan households don’t earn enough to pay for the necessities, getting to scale is essential.

The post How to support ALICE households at scale appeared first on Michigan Future Inc..

Because of the time lag that accompanies Census Bureau data, the 2023 report covered data from 2021, during the heart of the pandemic. The 2024 provides a snapshot of how Michiganders were faring in 2022, as the worst impacts of the pandemic receded.

The 2023 report captured the state of financial hardship in Michigan at an interesting time. On the one hand, in 2021 Michigan’s economy was still reeling from the impacts of the pandemic, with an average unemployment rate near six percent. On the other hand, in 2021 households saw unprecedented levels of cash-based support from the federal government, through additional rounds of “stimulus checks,” expanded unemployment assistance, and the introduction of an expanded child tax credit. This additional government support led to historic declines in income poverty in 2021, and, here in Michigan, the 2021 ALICE rate (39%) was stable compared to pre-pandemic figures. As became a theme during the pandemic, broad, cash-based government supports prevented widespread material hardship and bolstered financial stability in the face of what could have been a pandemic-induced economic disaster.

Fast forward to 2022, however, and a different story emerges. Poverty (as measured by the Supplemental Poverty Measure, which takes safety net benefits and taxes into account) spiked nationally, jumping by 4.6 percentage points for the whole population and 7.2 percentage points for children, both the highest single year increases since the late 1960s, when poverty measurement was established.

And now, through this updated report from the United Way, we see that here in Michigan an additional 100,000 households fell below the ALICE thresholds in 2022, bringing the state’s ALICE rate up to 41%. This now means that nearly 1.7 million Michigan households struggle to pay for basic necessities.

If one were to go only by the share of Michiganders working, the rise in ALICE in 2022 might be surprising. The average unemployment rate fell from 5.7 percent in 2021 to 4.1 percent in 2022. More than 100,000 additional Michiganders were working in December 2022 than were working in December 2021. Yet, the ALICE rate shot up.

There are, of course, a number of contributing factors to the rising ALICE rate from 2021 to 2022, not least of which was rising inflation. But the core reason the ALICE rate spiked is that the cash-based social infrastructure that was erected during the pandemic fell away in 2022. Stimulus checks and expanded UI were long gone, and the expanded Child Tax Credit, which many advocates thought would be a lasting pillar of our social infrastructure, was also discontinued.

And for tens of thousands of households, it turned out that employment alone was not enough to avoid material hardship. As we have been saying for years, a low unemployment rate does not necessarily equal economic success. If the unemployment rate is low, but working households still cannot afford the basics, that is not success.

This is where public policies come into play. If households aren’t earning enough from work to pay for basic necessities, government supports ought to step in to ensure they don’t experience material hardship. However, at present, many of our attempts to assist Michigan’s nearly 1.7 million ALICE households fall short, largely because our social service programs serve only a small fraction of ALICE households.

In my next post, I’ll look at the share of ALICE households served by our most prominent social safety net programs, and talk about why one of the only ways we can help ALICE households at scale is through refundable tax credits like the EITC.

The post Economy improves, ALICE rate goes up appeared first on Michigan Future Inc..

The motivation behind the proposal was two-fold. First, far too many non-affluent households in Michigan struggle to pay for basic necessities. This is particularly true for working parents with young children who, on top of everything else, face childcare costs averaging $11,000 per year. These households need more support.

But in addition, we felt that these households needed this support in the form of more income, not more programs. Programs are often difficult to apply for and limited in scope and scale. Cash, distributed through the tax code, is easy to apply for and can reach the vast majority of eligible households. Programs are narrowly defined for a single purpose (e.g., food, housing, childcare), limiting how families can spend the available resources. Cash is flexible, allowing households to put the money towards whatever need is most pressing for their household.

So this was our motivation behind developing the working parents tax cut: working parents with young kids need more support, and that support should come in the form of cash, not programs.

To make sure we were right, however, we recently fielded a large poll to see if Michiganders agreed with us. It turns out they do.

The poll reached 500 Michiganders, and achieved broad representation by race, income, age, family structure, and political ideology. Respondents answered a range of questions about the proposal, whether we should support non-affluent working parents with programs or cash, and what the government’s role is in helping families keep up with the cost of living. What we learned is that:

• After reading a short description of the proposal, including its $1 billion price tag, 69 percent of Michiganders support the WPTC. After receiving more information and key messages about the proposal, overall support jumps to 76 percent.

• The proposal was supported by 88 percent of Democrats, but also 68 percent of Independents, and 53 percent of Republicans, demonstrating broad bi-partisan appeal.

• The proposal was supported across subgroups, with more than 60 percent of each sub-group (by race, age, and income) supporting the measure. Perhaps most surprisingly, 69 percent of non-parents supported the measure, matching the share of parents who supported the measure.

•  When asked whether government should help families keep up with the costs of living by cutting taxes or funding specific programs 63 percent of Michiganders opted for reducing taxes on working parents.

• And overall, 93 percent of Michiganders think it is an important priority for the governor and the legislature to help Michigan families keep up with the cost of living.

In our briefings with the pollsters, they have been astounded by these results. They told us it is hard to find an issue that achieves this level of broad bipartisan support, across race, income, age, and family structure. It’s even rarer, they said, to find this level of support for a policy when voters know it comes with a high price tag.

In an era marked by division, it seems Michiganders can unite on the need to deliver more supports to working parents with young children, who are struggling to pay for the basics. It seems Michiganders recognize that the best way to help these households is not through more programs, but by delivering more income, for those households to spend as they see fit. And it seems Michiganders recognize that delivering this support is worth the cost.

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