Low income families need
tax cuts too advocates say
LANSING — As the federal government debates whether to extend Bush-era tax cuts for the wealthy, some experts say tax cuts should be available even to low-income people.
Judy Putnam, press officer of the Michigan League of Human Services, said it’s commonly accepted by the federal government that low-income people do not pay taxes. “This is simply not true. Everybody is contributing their fair share,” she said.
The organization’s new report, “Got Skin in the Game?” argues that low-income households in need of government assistance do, in fact, pay taxes.
“The purpose of this report is to show that those who don’t pay income taxes still pay sales taxes, and anyone who works is subject to payroll taxes, which makes them equally eligible for tax cuts,” Putnam said.
According to the report, in 2011 Michigan’s income tax provided up to 20 percent of total state tax revenue, while consumption taxes such as sales, use and excise accounted for up to 3 percent.
Drawing further on the research, the report said that Michigan households earning $15,000 or less spent nearly 9 percent of their income on taxes, about the same proportion as higher wage earners with an income of more than $86,000 annually.
However, the larger share of taxes paid by low-income households are sales taxes for basic needs.
Jim Crisp, director of the Michigan Community Action Agency Association, said that a few hundred dollars in income tax might not be much for moderate-income families, but for low-income people it’s an entire month’s earnings.
“It might not seem big even to us middle-class people, but for many poor households, every dollar means more food, medication and gas,” Crisp said.
The association works in all 83 counties with people who are low-income, have special needs or are elderly and helps them to improve their financial situations and file tax returns.
“I think people in the federal government need to understand that low-income households actually do pay taxes and should be given every single opportunity to improve their financial situations,” Crisp said.
Nicole Appleberry, a professor at the University of Michigan Law School, also criticized the misconception of the poor not paying taxes. “It is completely wrong to say they don’t pay anything. A single person making $400-$600 a month or receiving unemployment benefits does pay taxes,” she said.
Unemployment benefits in Michigan are taxable and range from 0.06 percent up to 10.3 percent on the first $9,000 on each employee’s wages, according to Department of Licensing and Regulatory Affairs.
In late 2011, Michigan was ranked as having the fourth-highest unemployment rate nationally, with the most vulnerable counties including Kent, Lapeer, Cheboygan, Wayne, Gladwin, Baraga and Manistee.
Appleberry said that during her clinical practice, she has met many low-income families who can barely make ends meet. A large portion of their monthly income is directly collected by the Internal Revenue Service.
“We had a client who makes $750 in Social Security Disability Income and has terminal liver cancer. Every month the IRS takes about 15 percent of his income,” she said. “This is a serious issue. We really have clients who have been in this situation. Some manage to improve their life while continually facing challenges.”
While there is a general assumption that most poverty is chronic, in actuality, those who don’t pay income taxes one year do pay taxes in subsequent years, the League’s report indicates.
According to a study by the U.S Census Bureau, 75 percent of households moved out of the poverty level in a year or less, and only 5 percent remain in poverty for multiple years at a time.
Sheldon Danziger, a professor of public policy at U-M, said the state needs to increase its earned income tax credit.
Danziger said the earned income tax credit benefits people with low and moderate wages by reducing the amount they owe and increasing their tax refund.
“It is not an issue of economic growth, but it is an issue of fairness and the ability of people to provide for their families, pay their rent and afford to meet basic needs,” Danziger said.