Thanks to the state Earned Income Tax Credit, Michigan has gone from being one of the harshest states when it comes to taxing its poor to one of the more moderate states.
The Center on Budget and Policy Priorities has released a state-to-state comparison of the state income tax threshold, the minimum level of household income at which a family or individual must pay income tax. Families with incomes below that level do not have to pay state income tax.
So how has Michigan done? Well, in 1990 a two-parent family of four could have an income as low as 60 percent of the federal poverty line and still pay state income tax, and by 1995, the tax threshold had dropped to 55 percent of the poverty line. However, for most years from 2000 through 2007, the tax threshold for the same family was between 70 percent and 73 percent.
Then, in 2008, the Michigan Earned Income Tax Credit went into effect, which allowed filers to claim 10 percent of the amount of their federal earned income credit amount that year as a state credit. This caused Michigan’s state income tax threshold to jump to 108 percent. Because the threshold was now at more than 100 percent of the poverty line, this meant that Michigan’s working poor families no longer had to pay state income tax.
In 2009, the state Earned Income Tax Credit went from 10 percent to 20 percent of the federal credit, bringing Michigan’s state income tax threshold to 121 percent of the poverty line. Families who three years ago would have had to pay income tax each year are now getting money back as a refundable tax credit. A single parent with two children who earns minimum wage gets a Michigan earned income credit of $545 this year, and a two-parent family of four with similar income gets $701.
So how does Michigan compare to other states in terms of income tax fairness? A few years ago, among the 42 states with income tax, Michigan was in the top five worst (lowest) tax thresholds. It now ranks around 30-32 in most comparisons (minimum wage earners, household income at poverty line, etc.), with 42 being the best. So thanks to the legislators and governor who enacted the state earned income credit, Michigan’s working poor families can look forward to tax season rather than dreading it.
— Peter Ruark