ARTICLE

Raise tax credit to help working families, boost economy

Gazette Editorial Board

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Editor’s note: One in a series of editorials on poverty, one of The Gazette Editorial Board’s local priority issues for 2013.

State lawmakers are locked in a stalemate over Medicaid expansion. Big disagreements remain over education reform. They’re still tied up in knots over property tax breaks for businesses.

The biggest issues of the session are stuck fast, with no end in sight.

At the same time, an expansion of Iowa’s earned income tax credit cleared the Iowa Senate on a bipartisan 35-15 vote. Majority Democrats and a fair number of Republicans supported a $54 million tax break for more than 200,000 low-income working families, many with children, earning less than $45,000 annually. The lower the income level, the larger the credit.

The Iowa credit, calculated as a percentage of the federal earned income credit, uses the tax code to encourage work and boost the buying power of low wages. A map identifying where Iowans who benefit from the credit live shows that the credit helps both urban and rural workers struggling to stretch low and often stagnant paychecks.

It seems like the sort of bill that would cruise to Gov. Terry Branstad’s desk.

STILL STALLED

And yet, that’s not the case. It’s been reported that the Republican-controlled Iowa House won’t take it up. And Branstad has, since 2011, twice vetoed earned income tax credit expansions. The governor and some of his GOP allies insist that tax breaks for these working families must be shackled to other long-gridlocked tax reform measures. It’s not a long-overdue bill. It’s a bargaining chip.

This situation, like so many things at the Statehouse, makes little sense outside the golden dome.

Branstad worries, rightly, about the rapid expansion of entitlements. That’s what makes it so curious that he would twice veto a measure lowering taxes and boosting incomes above the poverty line for hundreds of Iowa families, potentially making them less dependent on public assistance. A 2009 analysis by the Iowa Policy Project found that increasing Iowa’s credit from 7 percent to 15 percent of the federal earned income tax credit would lift 1,3000 Iowa families out of poverty, including 4,000 children. The bill that passed the Senate would increase Iowa’s credit to 20 percent.

Numerous studies show that childhood poverty can be a serious impediment to educational attainment and future earnings. A Legislature and governor intent on improving Iowa school performance and student achievement should consider that. Nationally, according to the Census Bureau, the earned income tax credit cut the child poverty rate in the United States by more than 6 percent. Or, in other words, without the additional money to spend from the credit that goes to families, 6 percent more children would live in poverty.

NO BARGAINING

We’d like to see lawmakers and the governor reach an agreement on cutting business taxes. But we don’t want any failure to reach such an agreement to jeopardize an earned income credit increase that would put more money in Iowans’ pockets and into the cash registers of the local businesses that serve them.

And although there’s a good case to be made for making Iowa’s businesses taxes lower and more competitive, it’s also troubling that some Iowa households that earn too little to pay federal income taxes still must pay state income taxes. A state that hands out tens of millions of dollars in tax breaks to large firms in the name of job creation should be able to afford providing a justifiably bigger break to Iowans already on the job.

The earned income tax credit expansion is an endorsement of work over dependency, a pushback against a growing tide of child poverty, an economic shot in the arm for local business and tax relief for families that need it most. It’s bipartisan effort that should be approved and signed into law this year.

It should not be a bargaining chip.

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