On the road to Michigan’s future, the ride for the poor is about to become a little rougher. Not to mention quite a bit more muddled.
The Governor’s proposal to eliminate Michigan’s EITC appears to make an initial sort of sense. After all, in its monetary sense, the program simply represents one of the larger claims on the state budget. So if you are looking for money, this is one of the pots one goes to. No question about it. Moreover, the existing federal program maintains many of the desirable policy goals, so while State cuts the budget affect the generosity, that does not mean the working poor are thereby abandoned or unrewarded.
So what does that extra $432 (on average) do for the working poor? According to research it goes for such things as childcare, the payment of a past due utility bill, or setting up a “rainy day” fund — a thin cushion, in other words, against the shocks of life.
Welfare by another name?
Some believe that cushion should not be there at all. Dan Calabrese figures that with the robust job market being what it is, the working poor should just go and get another job. Others are more judicious. Take Gary Wolfram and the Mackinac Center: the MiEITC is an income transfer pure and simple. Scraping this a little more we can also see that framed this way, their approach comes close to the basic push them back to misery. However minimalist approaches breed their own externalities. And it’s not as if the EITC were a pure grant at all.
Some of this Conservative Confusion lies in misunderstanding the tax code itself. As David Waymire points out, the poor are subject to a cluster of regressive taxes, from millage to sales tax in addition to the federal, state and FICA payroll taxes. The money for these taxes comes directly out of an already stretched household budgets.
Even though MiEITC gets counted in federal Maintenance of Effort for welfare programming (this being Wolfram’s point), its real benefit and the questions for the Snyder administration lie elsewhere.
Just who is getting paid?
If we turn the rock over, however, we see the EITC is rather a subsidization of low-wage employment. For the employer, the credit functions as a subisidy for low wages. As the benefit is targetted to those working and varies with family size, it serves a family-friendly function that straight grants do not. Small wonder that once, this was a beloved child of Republicans. In any case, if Michigan needs more jobs, then a program that supports the working poor would seem to be a natural.
Here, the liberal complaint against the federal EITC program should be noted: benefits to companies outweigh those paid directly to the worker. EITC functions to drive down wages for all in the economic marketplace. this role is off-set by the high rate of unemployment. However this can only take place in an economy with robust employment. Where we have high unemployment — a buyers market, as it were — there is less incentive, less necessity for subsidies. In fact a compassionate conservative might even ask, whether we really need a subsidy to push wages lower.
What is Snyder after? And does it work?
But the larger, unspoken issue is the shape of the economy that the Governor is pursuing. Grant his desire to lower taxes in Michigan, then the economic exchange here would appear to be one where we forgo subsidizing low wage economy for the pursuit of higher value work. However, here we encounter the contradiction that lies at the heart of the Gov budget: to the extent that one is favoring creation of high value jobs over against the low wage economy, then one is necessarily on the line for the creation of a skilled workforce. Eliminating the EITC continues to push at an unskilled economy and away from a competitive future. Thus, we cannot at once be eliminating the EITC and cutting out education and training, not if we are serious about making Michigan’s workforce competitive.