Branstad veto was a senseless hit on less fortunate Iowans

By The Des Moines Register

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Critics of Gov. Terry Branstad need no reminders of his tax philosophy aimed at helping businesses and individuals at the top of the income ladder, not those at the bottom. They nonetheless got a reminder when the governor vetoed a modest increase in a tax credit that benefits those at the very lowest rungs of the economic ladder.

The Legislature voted twice this year to increase an income-tax credit for low-income wage earners. Branstad vetoed the increase both times, not because the state can't afford it (which it can) but because he said it was not part of a “comprehensive and holistic” tax-reduction package.

We could not agree more with the governor on the need for a comprehensive approach to tax reform. We have, for example, repeatedly urged the governor and the Legislature to stop putting Band-Aids on Iowa's convoluted property-tax system and tackle the job more comprehensively.

But the governor did precisely the opposite by pushing for a property-tax break narrowly targeted at commercial businesses. It did not pass, but two other targeted tax credits, neither of which were part of a holistic or comprehensive reform, did pass, and the governor signed them both into law.

Iowa's income-tax system also needs a complete overhaul, in part because low-income Iowans pay a bigger share of their income in taxes than those with higher incomes. Indeed, Iowa begins taxing Iowans earning as little as $22,000, whereas the federal income taxes don't begin until incomes go over $42,000.

To at least soften the blow, Iowa grants low-income workers a tax credit that cuts their state income-tax bill by anywhere from $1 to $340, depending on income and family size. The Iowa credit is a flat 7 percent of the federal credit, which can amount to as much as 34 percent of earnings depending on income, marital status and number of children.

The bill vetoed by Branstad would have raised the Iowa credit to 10 percent, which would have cost the state treasury an average of $12.8 million a year over the next four years. According to an analysis by the nonpartisan Iowa Fiscal Partnership, the new benefit would have amounted to less than $100 to a family of four making $30,000.

That's not exactly a princely sum, but it would be meaningful for such families.

This Earned Income Tax Credit has had bipartisan support dating back to President Ronald Reagan, because it encourages people who might otherwise be on public assistance to hold a job by letting them keep more money in their pockets. For those at the lowest income levels, the credit can amount to a refund beyond any tax liability. In Iowa, about half of those who claim the credit receive a refund.

The Earned Income Tax Credit can be especially important to families with children. “If there was one thing in our tax code that is unfair, I think tax experts would agree it is the way we tax families with children,” said Charles Bruner, executive director of the Child & Family Policy Center in Des Moines.

“We have one of the highest taxes on working families with children,” Bruner said. “The EITC is one way to address this for lower-income wage earners.”

The inequities in Iowa's income-tax system would be enlarged by targeted tax breaks for businesses and high-income earners advocated by Governor Branstad. If he succeeds in getting his way on those, he at the very least should go along with targeted tax relief for less fortunate Iowans.