The Iowa General Assembly is currently deliberating on expanding the state’s Earned Income Tax Credit (EITC). The EITC is a tax credit offered to less privileged incomes of individuals or couples. It serves as an incentive for work and helps alleviate the burden of payroll and income taxes. The Cedar Rapids Gazette editorial board supports this expansion and argues that a state that provides tax breaks to large corporations should also be able to afford providing a justifiably bigger break to working families.
The cost of raising a family in Iowa is substantial. Even at the median wage of approximately $15 per hour, working full-time throughout the year is inadequate to cover basic needs such as food, rent, childcare, transportation, and other essentials for families with children. For instance, a single parent working full-time with a small child needs approximately $32,300 to meet basic expenses, while a married couple with two children requires more than $50,000. Half of the jobs in Iowa pay less than $32,300 needed by the single parent, and many jobs pay minimum wage, which amounts to roughly $15,000 per year if the parent works full-time.
The federal and state EITC, along with other refundable credits, can increase the after-tax income of a low-wage worker by around $4,100, closing a quarter of the gap between basic needs and disposable income. However, these credits are reduced as income increases. An increase in the state EITC from 7% to 20% of the federal credit would help undo some of the problems of family income adequacy. For a single parent working at minimum wage, this change would provide an additional $400. For a two-parent family with two children, this change would add $430 to the $3,780 in refundable credits, bringing their total to $4,210.
Although an increase in the Iowa EITC to 20% of the federal would not be sufficient to raise minimum-wage families to a no-frills budget level, it would help bridge the basic-needs gap for over 200,000 Iowa households, including 37% of Iowa children. A compelling case can be made for increasing the credit to 30%, which would align the EITC with the Iowa income tax overall, which is approximately 30% of the federal. This increase would also help offset the Iowa tax system’s poor treatment of families, with a personal credit of only $40 per child compared to the $3,800 federal personal exemption.
The expansion of the EITC would help support working families, incentivize work, and provide tax relief for those who need it the most. It would also provide an economic boost to local businesses, as low-income families are more likely to spend their additional income on essentials like housing, food, and transportation. Overall, the EITC expansion would be a step towards reducing poverty and increasing economic stability for working families in Iowa.
In conclusion, the Iowa General Assembly is considering expanding the state’s EITC, which would provide much-needed tax relief for low to moderate-income working individuals and couples. The Cedar Rapids Gazette editorial board supports this expansion, arguing that it is reasonable to provide a larger tax break to working families, especially given that the state offers tax breaks to large corporations. An increase in the state EITC to 20% of the federal would help fill the basic-needs gap for over 200,000 Iowa households, including 37% of Iowa children. Furthermore, increasing the credit to 30% would help offset the Iowa tax system’s poor treatment of families, with a personal credit of only $40 per child. The expansion of the EITC would incentivize work, provide tax relief for those who need it the most, and support local businesses.