Governor Branstad, in vetoing an increase in the Earned Income Tax Credit (EITC), advocated for “comprehensive and holistic” approaches to tax policy.
The small EITC boost — passed twice in the last legislative session with bipartisan majorities — was part of an appropriations bill, and the Governor exercised his item-veto power to stop it. The proposal would have expanded the state credit from 7 percent to 10 percent of the federal credit, a cost of about $14 million a year.
As Iowa Policy Project analysts pointed out in separate guest opinions published in Iowa newspapers — including Lily French in the Iowa City Press-Citizen and Peter Fisher in the Cedar Rapids Gazette — the Governor is being selective at best about what is “comprehensive” by singling out one credit for his veto.
“In the very same bill, SF533, Branstad signed into law two other expansions of tax credits,” French noted.
Added Fisher about the Governor’s 2011 legislative agenda: “The Governor sought targeted changes in tax policy that overall would reduce resources for critical public services, and further weight an already unbalanced scale to the benefit of the wealthiest and most politically connected taxpayers.”
A comprehensive and holistic approach to tax policy would look at the balance of Iowa’s entire state and local tax structure. Short of that daunting task, even incremental change should acknowledge the need to make reforms consistent with strong and sound principles for tax policy, and all budget policy. And the Governor also stated in his veto message that he favors that sort of evaluation.
The Iowa Fiscal Partnership over the years has evaluated tax policy and tax proposals in the light of seven well-established principles for taxation:
- public benefit and economic efficiency
- revenue adequacy
- stability and predictability
An evaluation under those principles would argue not only for an expansion of the EITC, but one well beyond the meager 10 percent proposal that was passed and vetoed twice in 2011.
The EITC has been shown to help low- and moderate-income working families as well as local economies where those families use their savings for necessary purchases. A comprehensive view of Iowa tax policy would recognize Iowa’s Earned Income Tax Credit is overdue for expansion.
Posted by Mike Owen, Assistant Director