Cut Corporate Welfare Before Social Welfare to Fund Roads

Michigan's Earned Income Tax Credit is a welfare-like program that transfers income from taxpayers to low-income wage earners who have little or no state tax liability. The costs vs. benefits of the program are hotly debated, but no one disputes that it does provide a real if modest benefit to working poor families.

In contrast, there are heated disputes about the value of the even larger amounts this state spends on corporate welfare programs administered by the Michigan Economic Development Corporation — and there are good reasons to believe they are a waste of money. Lawmakers should keep this contrast in mind as they wrestle with the still-simmering road funding issue.

The House has passed a road funding plan that eliminates the state EITC and redirects $117 million currently spent on it to road repairs. The Senate is poised to do the same, with an EITC repeal bill reported from committee and pending on the floor.

The House plan also transfers $187 million from the MEDC's corporate welfare programs to road repairs. The Senate plan, however, does not touch MEDC funding.

Leaders in both bodies are seeking a compromise plan, and a good starting point would be to embrace the MEDC cuts of the House plan.

“Michigan shouldn’t cut social welfare to pay for roads until every possible dollar has been wrung from corporate welfare programs,” said Joe Lehman, president of Mackinac Center for Public Policy. “The MEDC consumes hundreds of millions of dollars but almost never meets its lofty job claims. The deals are cloaked in secrecy and mainly benefit a few favored recipients. Shifting that money to roads would do far more for economic development than most of what they’re doing now.”

Not surprisingly, House Democrats voted against the part of the road package that cuts the EITC. They also voted against the corporate welfare cuts, which is less surprising than many might imagine. However, while the EITC is a core issue for Democrats upon which they're unlikely to budge, cutting MEDC subsidies might be another matter.

Michigan Capitol Confidential recently asked House Democratic Leader Tim Greimel, D-Auburn Hills, about a potential road funding deal in which the EITC would not be cut in exchange for Democratic votes on significant MEDC cuts.

“I don’t want to dive into hypotheticals, but House Democrats have been clear that Michigan needs a long-term solution that dedicates real dollars to roads, and doesn’t rely on smoke-and-mirrors trickery,” Greimel said. “Savings from reforms and cuts at the MEDC can be a part of that solution, and it is imperative that we preserve the EITC and not unduly burden low- to middle-income families.”

“The Republican plan to gut the EITC in order to generate a small fraction of the funding needed for roads is shortsighted,” Greimel continued. “According to the Michigan League for Public Policy, the state’s earned income tax credit lifts 7,000 working families above the poverty line and brings tax relief to 820,000 working families statewide. We believe that major reforms are needed at the MEDC to ensure transparency and accountability and to rein in corporate welfare.

“Retaining the Earned Income Tax Credit is a top priority for our caucus,” Greimel concluded. “The EITC has long had bipartisan support across the country due to its proven effectiveness as an alternative to welfare that rewards low- to middle-income individuals who choose to work.”

For now it appears that legislative Democrats are on the outside looking in regarding road funding negotiations. If that changes, the distinction between their stances on protecting the EITC and cutting MEDC subsidies could become critical to striking a deal.

Editor's note: This story originally reported the Senate passed a road funding plan that eliminated the Earned Income Tax Credit. The Senate did pass a road funding plan but didn't eliminate the EITC.