It should be no surprise to anyone that Democrats and Republicans disagree how to change the tax system. Lead by Gov Whitmer, Democrats have proposed tax changes which primarily benefit working class families. Republicans in the legislature have proposed tax changes which primarily benefit wealthier families. Both Democrats and Republicans are pandering to senior citizens by proposing competing reductions of the tax on pensions. Pretty much what you would expect in an election year.
Changes to Michigan’s income tax system which should be discussed include the taxes that impact Michigan’s veterans with a service-related disability, the blind, and vulnerable residents of Michigan’s adult foster care, assisted living, or nursing homes. Additionally, I agree with attempts to reinstate the Michigan earned income tax credit to its former status.
Let’s start with taxes for disabled veterans and blind residents. As background, home owners who pay property taxes which are more than 3.2 percent of their total household resources (i.e., taxable and non-taxable income) and who have less than $60 thousand in that income may be eligible for the Michigan homestead tax credit. The same is true if a percentage of their rent exceeds the same 3.2 percent threshold.
Many years ago, Michigan developed a special homestead tax credit form for veterans with a service- related disability or home owners who may be blind. This form is the Michigan 1040CR-2 and is entitled the “Michigan Tax Credit Claim for Veterans and Blind People.” Again, this form is not for all veterans, only those with a service-related disability or extremely poor veterans. So, perhaps the title of the form needs to be clarified.
But on top of that, one would think that by filing a special form for the blind or disabled veterans that the filer would get more tax credit refund than by filing the regular homestead tax form. Not necessarily true. By filing the 1040CR-2 tax form in many cases the refund will be less than filing the regular homestead form. Indeed, the instructions for the form state: “A Homestead Property Tax Credit Claim for Veterans and Blind People (MI-1040CR-2) is included in this booklet. … complete this form and the (regular) Homestead Property Tax Credit Claim (MI-1040CR). File the form that gives you the larger credit.” (Treasury emphasis).
Why would anyone develop a tax system which in any situation penalizes a disabled veteran or blind person for filing a special form just for them? As far as I can tell, filing the special form only benefits those veterans or blind people whose property taxes are too low to qualify for the regular credit or possibly are just a few dollars over the minimum 3.2 percent threshold. At a minimum, the instructions for the special form should more clearly indicate who benefits by filing the form. Better yet, simplify the filing of the credit for disabled veterans and blind people. Let one form readily calculate the best credit for these residents without these individuals having to prepare two separate forms to obtain their eligible credit.
Another group of tax filers may also be eligible for the homestead tax credit based on their residency in a nursing or adult foster care home. Vulnerable Michiganders in these homes should not have complicated calculations to determine their tax credit, but they do. Treasury does allow these residents to claim the credit if their home itemizes rent in addition to health care, food, and other costs. In my experience, very few of these homes itemize their bills in a manner satisfactory to Treasury. As an alternative, nursing and adult foster care residents may take the credit based on their “share” of the property tax paid by the foster care or nursing home. Of course, the data needed for this is also not readily available. A simple solution would be for the State to require nursing and adult foster care homes to provide this information to residents annually.
Finally, I agree with efforts to improve the Michigan earned income tax credit (EITC). The administration of former Gov Snyder reduced the EITC by two thirds. Reinstating the EITC to 20 percent of the federal EITC would benefit working parents making less than $50 thousand per year. It may also encourage more individuals who left the work force during the pandemic to reenter the work force. EITC is only available to those who have a job.
The tax system for vulnerable and poor Michiganders should help and not burden them. Too often that is not the case.
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