What has happened to the once-esteemed Earned Income Tax Credit? Everyone used to love it.
The EITC is the target this week as state House Republicans continue hearings as they look for ways to raise more than $1 billion for roads without raising taxes.
The EITC goes to low-income working families. Liberals like it because it allows those families to hang onto more of their paychecks. Conservatives like (or liked) it because it’s an incentive to work instead of going on welfare. In the mid-1980s, President Ronald Reagan included the EITC as part of a tax reform bill that he said constituted the best anti-poverty program ever passed by Congress.
(We should note he was talking about the entire tax overhaul, not just the EITC. Reagan is often mis-quoted as saying that specifically about the EITC. The EITC was part of the package, but Reagan was not talking only about the EITC.)
But it is now not quite so beloved among Republicans as it once was. The thrill is gone.
Governor Rick Snyder tried to get rid of the state EITC in 2011. And, now, Republican House leaders are looking to take a chunk out of it again. They say the money would be better spent on roads.
So, why the change?
Well, for one thing, the EITC violates some Republicans’ principles of tax fairness. Michigan is one of a handful of states that uses a flat rate income tax. The same rate paid by everyone regardless of income.
But the earned income tax credit is an income-based credit. So some conservatives say that makes Michigan a de facto graduated income tax state where people pay different rates based on how much money they make.
Now, Democrats say it’s a pittance – that it doesn’t really count as a graduated tax. In fact, some Democrats say it’s time to make Michigan a real graduated income tax state. They’re eying a petition drive to put a question on the 2016 ballot. (We’ll talk some other time about the political aspects of some potential class warfare ballot action.)
So to some, Republicans tend to be flat taxers, while Democrats say those with bigger incomes should pay higher rates. Except when they don’t.
Another part of the House Republican road funding package is a case in point - the proposed surcharge on hybrid and electric vehicles. The idea is to charge those vehicles higher registration fees because they’re built to use less gas and, therefore, those drivers pay less in fuel taxes. (There’s a legitimate debate about whether that’s really the case. A hybrid SUV can use a lot more gas than a fuel-sipping compact, for example.)
Left-leaning environmental groups don’t like this idea one bit. They say electric cars and hybrids are already more expensive, so those owners pay more in sales taxes and value-based registration fees. They say it’s not fair to charge them even more.
Republicans on the House Transportation and Economic Development Committee counter that if those owners can afford the more-expensive vehicles, they should be able to afford the higher registration fees. So now we have the environmental left arguing for flat-rate taxation while Republicans are arguing for what’s effectively a graduated tax when it comes to alt-fuel vehicles.
In part, that’s because the search for solutions in a political environment is often an exercise in conclusion-based reasoning. Also, consistency is a lot to expect of anyone.