Lessons from Michigan's Successful Effort to Enact an EITC
A Special StateEITC.com Interview

The State EITC Online Resource Center is pleased to present a special issue electronic newsletter on the new state Earned Income Tax Credit in Michigan.

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On September 22, Michigan Gov. Jennifer Granholm signed legislation creating a state Earned Income Tax Credit. The new 10 percent refundable EITC will take effect in 2008 and will rise to 20 percent in 2009. Michigan becomes the 2oth state, including the District of Columbia, to enact an EITC. For more information about Michigan’s EITC and other state EITC issues, go to: www.stateeitc.com

The key figure in Michigan’s successful state EITC effort was Senate Democratic Leader Robert Emerson (D-Flint). Sen. Emerson’s Assistant on the project, Legal Counsel John Mulcrone, took some time recently with StateEITC.com to discuss the new law and to share some lessons for advocates and legislators.

StateEITC.com: Your boss, Senator Bob Emerson, has been a long-time supporter of enacting a state EITC. Why was this issue so important to him?

Mr. Mulcrone: Senator Emerson is from Flint, Michigan where there are a lot of low-income working families so this is the type of thing that he naturally supports. We needed to make Michigan’s tax system less regressive, since the last national public research interest group study on regressive tax systems placed Michigan in the 10 most regressive tax states. In Michigan, we’ve been giving a lot of corporate and broad-based tax cuts, so we need to inject some fairness into the tax system and give a tax break to low-income folks.

StateEITC.com: What were the most compelling messages that you used around the EITC?

Mr. Mulcrone: For the audience that we needed to convince (conservatives and Republicans), the most compelling message was that if you give tax cuts to poor people, they spend it in the very area where they live. The dollars stay in the community.

We distinguished between giving tax cuts to corporations who would then invest the money in off-shore or out-of-state endeavors or in a New York investment house. You don’t get the SAME economic spin from that kind of tax cut. The research that we relied on, which was done independently, shows that if you give a tax cut to low-income working families they go and buy a washing machine or a dishwasher or a TV, or they pay bills. It stays in the economy and gives a bit of an economic boost.

StateEITC.com: So you were making arguments in favor of economic development and tax cuts for low-income families. What about concerns about increasing Michigan’s deficit?

Mr. Mulcrone: Unlike many other states, in Michigan we still have really tight budgets because of our reliance on the auto industry. We need to be fiscally responsible, so we had to demonstrate that this tax cut doesn’t cost as much because the dollars are spent in the local economy. We relied on a study by Patrick Anderson who is an economist in Michigan. The study, commissioned by the Michigan Catholic Conference, showed that while on paper it looks like the EITC would cost $250 million, it really only costs $80 million because of the economic benefit. That was something that people could hang their hat on, that we are doing something good for poor people and we weren’t gutting the budget because of the way the recipients spend the money.

StateEITC.com: Did the advocacy community play any role in this effort?

Mr. Mulcrone: Yes. Sharon Parks and the Michigan League for Human Services helped a great deal. Because we don’t have a large staff on the minority side, Sharon and her staff really educated us about the EITC. The Center on Budget and Policy Priorities helped us navigate how the minimum wage and the EITC interact and benefit low-income people in different ways. We were dealing with both issues at the same time so they helped us with the best arguments to have both the minimum wage and an EITC. Finally, as I mentioned previously, the Michigan Catholic Conference has always supported this issue, and their paper on creating a Michigan EITC was very helpful.

StateEITC.com: What advice would you give to advocacy groups?

Mr. Mulcrone: I have three pieces of advice:

First, for the legislators that are inclined to enact an EITC, they need to be told that the cut won’t break the budget and endanger other social programs. They need to be told that the money is there and they need to hear the economic development argument. They need to be told that poor people don’t take this money and put it on the New York Stock Exchange; they (use their refunds to) pay their bills or buy a computer. The supporters need to know they aren’t gutting the budget.

Second, for folks that aren’t as big of supporters of the EITC, they also need to hear the economic development argument. It may look like a large number to pay for the EITC, but we need to inject a little fairness into the tax system. You are giving this to people who are working; they are just working in lower-paying jobs. If you don’t work, you don’t get the tax break – the responsibility argument. It’s a helping hand up.

Finally, look for legislative opportunities; don’t try to pass it on its own. If you don’t have the votes to pass it on its own, then you have to find something that the other side needs to hang their hat on to support this. You can hammer away on it on its own, or you can find something the other side has got to have. In our case, the state EITC was part of a broader compromise on making fixes to the minimum wage that the business community had to have.

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Watch for our next policy update for information on new reports and news on other states’ progress in enacting a state EITC. For more information about EITCs, visit: www.stateeitc.com