DES MOINES — A Senate committee next week will be asked to approve a $25 million increase in the earned income tax credit for more than 250,000 working adults earning $45,000 a year or less and their 266,000 children, a key backer said Thursday.
Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said he plans to offer legislation that would raise the state’s 7 percent tax credit to 13 percent of the federal tax credit for working poor families for the 2012 tax year.
“It’s time we pass a tax cut for people who need it the most,” Bolkcom told committee members who heard an appeal of support from a former state senator who was the architect of the credit established in 1989 and a mother of three who benefits from the tax break. “It’s a great incentive. It rewards work. You have to have a pay check to qualify for it.”
Under the higher tax credit that Senate Democrats plans to propose next week, a single family of four earning $23,000 annually would receive a $173 tax cut under a 13 percent earned income tax credit, while the break for a single mother with three children earning $33,000 like Julie Heck of Pleasantville would receive a $140 benefit, according to examples provided by Senate Democratic staff.
Heck told senators Thursday that the federal and state tax credits she received last year enabled her to make a down payment on a reliable used car to drive to work and school, helped her make an advanced propane purchase that saved on her heating costs, and allowed her to put money in her kids’ savings accounts.
“The EITC has been an absolutely critical form of relief to my family,” Heck said.
Charles Bruner, a former state legislator who now works for the Child & Family Policy Center, said the current tax credit had a $28.5 million value for Iowa taxpayers in 2009.
“It’s really considered one of the best ways of putting money into the economy,” said Bruner, who helped pass the 1989 law that established the Iowa tax credit. He said he was surprised last year that Gov. Terry Branstad twice vetoed efforts to raise the credit last session, noting that Branstad signed the law in 1989 that created Iowa’s earned income tax credit on state returns – calling him “the gubernatorial father of the EITC.” Bruner said he would prefer to see lawmakers raise the state tax to 20 percent, which would have a $55 million fiscal impact for government.
Last session Democrats who control the Iowa Senate and Republicans who hold sway in the Iowa House sent the governor legislation intended to provide tax relief to about 240,000 working Iowa families earning less than $45,000 annually by raising the earned income tax credit from 7 percent to 10 percent. However, Branstad nixed the provision on two occasions, saying in his item-veto messages that he would consider it as part of a comprehensive tax policy overhaul that would include property tax reform.
Branstad and the split-control Legislature are again attempting to fashion a compromise to reduce commercial/industrial property taxes, limit tax increases imposed on owners of agricultural and residential property, and provide state money to local governments that would offset lost revenue due to a phase-down of commercial rates by 40 percent over eight years.
Senate Democrats have indicated that a property tax relief package would not advance this year without the governor’s approval of a change in the earned income tax credit. Branstad said he is agreeable to consider the issue as part of an overall tax package, but not as a precondition.
Sen. Brad Zaun, R-Urbandale, ranking GOP member of the Senate Ways and Means Committee, noted that Republicans supported the earned income tax credit issue last year but are “keeping our options open” this session as tax policy negotiations unfold. “We all pay too much taxes,” he said.

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