Traverse City Record-Eagle

Op-Ed Columns

May 20, 2012

Jack Lessenberry: Tax on poor hurts businesses

If you had to sum up the Republican Party's creed in a sentence, it might well be: Raising taxes is a bad idea, no matter what. After all, the GOP's rising "Tea Party" faction's name began as an acronym: Taxed Enough Already.

So how do you suppose Republicans would react if someone proposed slapping a massive tax increase on the working poor, one that was certain to hurt small businesses as well?

In Michigan, the answer is clear, even if it's not what logic might lead you to expect.

Hitting the working poor with a huge tax increase is exactly what the GOP-led state government did last year.

And the results are beginning to show. Last year, a heavily Republican Legislature reduced the Earned Income Tax Credit, usually known as the EITC, from 20 percent of the federal amount to just 6 percent.

That has meant an effective tax increase of an estimated $244 million on Michigan's poorest working families.

Gilda Jacobs is president of the non-partisan Michigan League for Human Services, which calculated that figure.

She said, "That's money that would otherwise have gone to small businesses across the state that serve the needs of working families."

Particularly hardest hit, she said, are inner cities, but also rural Michigan communities.

That's because when the working poor do get a little extra money, they don't sock it away in banks in the Cayman Islands.

They tend to spend it almost immediately in the local economy. That produces a pro-growth multiplier effect.

In fact, the generally conservative Anderson Economic Group calculated that every dollar returned to the working poor actually generates $1.67 worth of economic activity.

That not only helps keep the working poor from falling into poverty, it helps the small businesses who service them.

Jacobs, a former Democratic state senator from the Detroit suburbs, agreed that impoverished Detroit is being hard hit by the fact that the working poor now keep less of their income.

But the century-old League for Human Services thinks the biggest impact might be felt upstate, where there is not a lot of affluence outside of resort towns like Petoskey and Harbor Springs.

"Many lawmakers don't realize the impact the EITC has on rural regions of our state, particularly in northern Michigan, which have high levels of poverty," Jacobs said.

She fears that the cuts to the tax credit "may well put out of business some small businesses such as independent grocers, small auto repair shops and second-hand stores that cater to low-income working families in rural communities."

The situation could have been worse. Last year, there was some discussion about actually doing away entirely with the EITC.

Gov. Rick Snyder came into office saying everyone should be treated the same under the tax code, and vowed to do away with special deals, like the massive tax breaks given to the film industry.

However, despite massive cuts, the EITC survived.

Democrats who were fighting to save it last year often irritated Republicans by quoting a famous politician who drastically expanded the federal EITC while he was president of the United States.

"The Earned Income Tax Credit is the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress," said that president, who was not, as some might have guessed, Lyndon Johnson or Franklin D. Roosevelt.

It was Ronald Reagan.

Three months ago, State Rep. Phil Cavanagh, D-Redford Township, introduced a bill to fully restore the Earned Income Tax Credit, arguing that it was clear how much it was needed.

But it appears to have no chance of going anywhere. Democrats are heavily outnumbered in the Legislature, and major bills they introduce tend to be merely ignored.

The governor and his GOP allies seem to feel that the key to regaining prosperity for Michigan lies almost entirely in tax breaks designed to lure more business to the state.

That doesn't make sense to Gilda Jacobs, who herself lives in relatively affluent Huntington Woods.

When asked whether cutting the amount of disposable income the working poor get to keep was apt to topple more families into poverty, she said "absolutely."

"This has as much of an economic impact as there is in giving tax credits to business," she said of the tax credit program. "Low-income families pay a larger share of their income already in sales and property taxes than wealthy" families, she argued.

Not only does it make more economic sense to let them keep more of their income, there is, she feels, a question of fairness.

There's no sign, however, that the majority Republicans agree.

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