A Senate panel agreed Monday to provide a bigger state income tax break for working families earning $45,000 a year or less during the 2013 tax year.
The Senate Ways and Means Committee voted 9-5 to boost the earned income tax credit, from the state’s current 7 percent tax credit to 20 percent of the federal tax credit for working poor families after turning back a Republican effort to broaden the break substantially.
Committee chairman Sen. Joe Bolkcom, D-Iowa City, said the 20 percent earned income tax credit contained in Senate File 88 would benefit about 210,000 Iowa households which are home to about 40 percent of the state’s children.
“This bill is what tax relief looks like,” said Bolkcom. “The tax relief is going to people who pay more than their fair share.” The bill’s manager said Iowa has a significant poverty issue and the tax relief targets those working families struggling to make ends meet.
According to a fiscal note prepared by the Legislative Fiscal Agency, Senate File 88 would provide $56 million in relief in fiscal 2014, $54 million in fiscal 2015, $53.2 million in fiscal 2016 and $52.3 million in fiscal 2017. The current 7 percent earned income tax credit is estimated to carry a $30.2 million cost in fiscal 2013.
Sen. Randy Feenstra, R-Hull, tried unsuccessfully to amend the bill to increase the refundable earned income tax credit from 7 percent to 10 percent as the Iowa Senate has approved in the past, but then provide a nonrefundable tax credit for all Iowans on income of up to $13,000.
He said the effect of his amendment would be to provide a higher EITC to 127,000 lower-income households and then provide tax relief for another 950,000 Iowa taxpayers. The maximum credit would be $520 for a couple filing jointly, while the average tax credit across all income levels would be $243 and the expanded tax cut would provide overall relief totaling $360 million.
“I think it’s fair to everybody,” the Hull Republican told committee members who rejected the idea by a 5-9 margin. “It goes to hardworking families and it recognizes everybody’s effort.”
However, Bolkcom called the expanded proposal a “budget busting” amendment that would further exacerbate an unfair tax system.
The bill now goes to the full Iowa Senate for consideration.
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