EITC credit would help children in financial crisis

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An important new report is out from United for ALICE, entitled, “ALICE in focus: Children in financial hardship.” United for ALICE found nearly 1 million children 17 or younger in Michigan — 44% of all children — lived in a household with income below the ALICE threshold of financial survival in the robust, pre-pandemic Michigan economy of 2019.

ALICE stands for asset limited, income constrained, employed and is not necessarily tied to the poverty level.

In Kent County, 65,295 (41.7%) children lived in a household with income below the ALICE threshold. In Ottawa County, 21,768 (31.3%) children lived in a household with income below the ALICE threshold.

These households include families in poverty, as well as those who were identified as ALICE. Michigan households below the ALICE threshold don’t earn enough to afford the essentials of housing, child care, food, transportation, health care, a smartphone plan and taxes — the basics needed to live and work in the modern economy.

I want to focus on the children living in a household below the ALICE threshold with at least one working adult. Approximately 642,000 Michigan children lived in a working ALICE household, meaning 68% of all Michigan children are in ALICE households. So, more than two-thirds of children living in households that cannot pay for basic necessities are in a household with at least one working adult.

In 2019, there were 1,515,000 Michigan children living in households with at least one working adult. So, more than 4 in 10 (42%) Michigan children in working households lived below the ALICE threshold.

  • 173,000 of these children lived in a household with two adults, both working. That is 23% of children living in a household with two adults, both working.
  • 266,000 lived in a household with two adults, one working, which represents 56% of children living in a household with two adults, one working.
  • 203,000 lived in a household with one adult who worked, or 72% of children living in a household with one adult who worked.

This data is consistent with Michigan Future’s findings that Michigan’s high ALICE rate primarily is caused by too many of us who work in low-wage jobs. Nearly 6 in 10 Michigan jobs pay less than what is required for a family of three to be middle class ($47,000). That is more than 2.5 million Michigan jobs in a robust economy that paid less than what it takes to be a middle-class household of three.

The pandemic made clear these low-wage workers live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leave them struggling to pay for the necessities. The reality is, most of those struggling economically, in good times and bad, are Michiganders who get up every day and work hard to earn a living. The United for ALICE data makes clear that many of these hardworking, low-wage workers are raising children.

What these low-wage workers need most is income, not programs. For the think tank I run, Michigan Future Inc., that means starting with a big increase in the state’s earned income tax credit (EITC). Expanding the EITC can help all 642,000 Michigan children living in a working ALICE household. In fact, because the EITC’s definition of an eligible child is broader than that of United for ALICE, the EITC benefited 985,000 Michigan children in 2019.

  • The maximum federal credit for a household with one child is $3,618. Increasing the state’s match of the federal credit from the current 6% to 30% would increase the state maximum credit from $217 to $1,085.
  • The maximum federal credit for a household with two children is $5,980. Increasing the state’s match of the federal credit from the current 6% to 30% would increase the state maximum credit from $359 to $1,794.
  • The maximum federal credit for a household with three or more children is $6,728. Increasing the state’s match of the federal credit from the current 6% to 30% would increase the state maximum credit from $404 to $2,018.

The EITC provides simple and effective tax relief, primarily for Michigan working families raising children. It has a long track record of being one of government’s most important anti-poverty programs for working families. Because the value of the EITC largely increases, while the value of other public benefits decline, it also combats benefit cliffs and taxes that exist across the public benefits system.

If we are serious about achieving an economy that, as it grows, benefits all Michiganders, and if we are serious about Michigan being a place that provides equal opportunity for all its children, we should make a big expansion of the EITC a cornerstone of the state’s post-pandemic economic recovery strategy.

Lou Glazer is president of Michigan Future Inc.

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