Advocates say raising earned income credit could lift Iowa children out of poverty

DES MOINES - Iowa should boost its tax credit to low-income working families to lift thousands of children out of poverty, an Iowa City think tank says.The Iowa Policy Project released a report Tuesday outlining the fiscal benefits to the state for expanding its Earned Income Tax Credit.

Peter Fisher, lead author of the report, said the tax credit rewards work and makes low-wage work more profitable. The Earned Income Tax Credit, extended to low-income workers, acts as a wage supplement and helps reduce child poverty rates, he said.

"Children raised out of poverty get more education and higher test scores, lower crime rates, less teen parenting, less welfare use, higher earnings," Fisher said.

Because the tax credit is refundable, those who qualify end up seeing a larger income tax refund than they would otherwise.

At the federal level, the maximum tax credit totaled roughly $4,800 for a single parent with two children last year, Fisher said. Iowa's earned income tax credit currently equals 7 percent of the federal credit, or $338 for that same parent.

If Iowa's credit were raised to 15 percent of the federal level, that would mean around $700 per year for that parent, Fisher said.

Boosting the state tax credit to 15 percent also would help lift 4,000 Iowa children out of poverty, according to Fisher.

Fisher said a 15 percent boost in Iowa's credit bring in an estimated $1 million in new revenue to the state because workers would be earning more.

Boosting it to 30 percent would bring in another $2.7 million in revenue to the state and would lift 10,500 children out of poverty, Fisher's report said.

Of the 24 states with an earned income tax credits, half have a credit of 15 percent or more, Fisher said.

State Sen. Joe Bolkcom, D-Iowa City, called raising Iowa's earned income credit one of his top tax priorities. Bolkcom, who serves as chairman of the tax-writing Senate Ways and Means Committee, said the earned income credit helps ease the load on public assistance programs.

"It's probably the single-most effective thing we can do to help families where you have income earners working from paycheck to paycheck," Bolkcom said of the earned income credit.