Iowa Fiscal Partnership: Branstad’s tax cut veto harms economic recovery
Unions and Democrats aren’t the only groups upset with a decision by Gov. Terry Branstad to deny a tax cut to Iowa’s poor. The nonpartisan Iowa Fiscal Partnership is warning the move harms families as well as Iowa’s ongoing economic recovery.
In reviewing appropriations bills submitted by the 2011 General Assembly, Branstad chose to exercise his constitutional authority for line-item veto to remove a 3 percent increase in the amount of federal Earned Income Tax Credit Iowa families could claim on their state return. Currently, Iowa families making less than $48,000 are limited to claiming 7 percent of this federal credit on their Iowa return. The Legislative-approved figure would have raised the allowable credit to 10 percent.
The Iowa Fiscal Partnership, which is a joint public policy analysis initiative of two nonpartisan, Iowa-based organizations, the Child and Family Policy Center in Des Moines and the Iowa Policy Project in Iowa City, issued the following statement about the veto:
Governor Branstad’s veto of the modest increase in the state Earned Income Tax Credit (EITC) hurts working people and the economy. The legislation would have increased Iowa’s credit from 7 percent to 10 percent of the federal credit.
The state EITC affects over 225,000 Iowa households, all of whom are working. Ninety-five percent of the benefits go to working families with children, all of whom have income of less than $48,000.
The EITC improves tax fairness, boosts income available to families raising children and reduces poverty. Research has shown it helps the economy, especially in difficult times.
Because of the federal EITC, most families with children do not owe federal taxes until their income is above $42,000, but Iowa’s income tax begins taxing families when their income is above $22,000. A family of four making $30,000 in Iowa would have received a state income tax reduction of about $97 through enactment of the EITC increase, if Governor Branstad had not vetoed the measure.
While this is not a lot to some families, it makes a difference for families who are working and trying to raise their children on what is only a little above the poverty level.
Stagnating incomes in Iowa have coupled with growing costs of basic household necessities to force tough choices on moderate-income working families trying to make ends meet. Money earned due to the EITC is spent on those necessities. It is one of several policy options that offer a way to both help the economy, and fill gaps between low-wage work and the cost of living.
In a letter explaining his line-item vetoes, Branstad wrote that he wants lawmakers to “approach tax policy in a comprehensive and holistic manner” and he urges “members of the House and Senate to continue to work with my office on an overall tax reduction package that both fits within our sound budgeting principles while reducing those taxes that are impeding our state’s ability to compete for new business and jobs.”
When asked specifically by The Iowa Independent if Branstad saw the EITC increase as posing a risk to future job creation, spokesman Tim Albrecht gave no direct answer. Albrecht did say that the governor “strongly supports tax relief for all Iowans and believes he increase in the Earned Income Tax Credit can be a piece of a larger effort to reduce taxes in Iowa.”
Earlier Thursday, union leaders pointed to another veto item that allows Branstad to offer bonuses to state department heads in conjunction with the denial of tax cuts for the poor as part of their evidence that the Branstad administration had created a ‘mean-spirited’ budget.
Senate Democrats began probing for a special legislative session Thursday afternoon, which would be aimed at addressing another Branstad veto that would force closure of more than 30 Iowa Workforce Development centers. House Republicans appear willing, but only if Democrats are also willing to take up Branstad’s property tax reform, a review of state regulations on businesses and education reforms.
Neither party has, as of yet, voiced a direct intention to over-ride the Branstad veto of the EITC.