Michigan’s Earned Income Tax Credit and the Rural Economy

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May 21, 2019 - Author: Steven Miller and William Knudson

As part of her budget, Governor Whitmer has proposed doubling the state’s Earned Income Tax Credit (EITC). Staff from the MSU Center for Economic Analysis and the MSU Product Center conducted an analysis of the possible economic impact of this policy on the state’s rural counties. The tax data was estimated using figures from Internal Revenue Service (IRS).

If the expanded EITC is funded through new revenue sources with no negative impact on Michigan residents’ disposable income, the total economic impact on the state is estimated to be $95.2 million. This includes an increase in the EITC from $23.6 million to $47.3 million plus multiplier impact of an additional $48 million. If the EITC expansion is funded by reducing government expenditures or higher taxes by the amount of the expanded EITC, the economic impact on the state is $15.7 million. The direct impact is estimated to be $6.9 million with a multiplier impact of $8.8 million. The third alternative of shifting tax burden from low income filers submitting state EITC, to other taxpayers, will result in a redistribution of tax burdens, but no material economic impact. Impact estimates in this brief were generated using IMPLAN Pro 3.1 for Michigan using 2016 tax returns – the most recent year available. IMPLAN is a highly recognized standard economic model for impact simulations.

As a percentage of the population, residents of rural counties are more likely to benefit from an expanded EITC than residents of urban counties. This is particularly true of counties in the northern Lower Peninsula. We estimate that about 334,898 Michigan rural residents are directly impacted by Michigan’s EITC. A county-by-county breakdown of the EITC is found in the appendix. 

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