Growing a middle class: lawmakers are promoting financial stability and success for working families.

• Author: Lohmer, Josh

Facing ballooning health care costs and climbing gas prices, more and more families are vulnerable to serious financial hardship. On top of rising costs and diminished savings, a job loss or health emergency can spell financial ruin for a family already scrambling to keep up.

Financial fragility is becoming commonplace: one-third of families in this country have no net worth, or are in debt. Twenty-five percent are asset poor, meaning they lack the resources to live at the federal poverty level for more than three months after losing their income. These are unnerving statistics.

"As a legislator, you're always cognizant of working families and the problems they face. You want to help the husband and wife working and struggling to raise their kids. But you're also limited for resources--these are some of the toughest times I've seen in years. So we're looking for more efficient ways to help families help themselves," says Iowa Representative Dave Heaton.

Using a variety of relatively new tactics, legislators are creating incentives that encourage smart choices and reward hard work. They have set up outreach campaigns to spread the word about the federal Earned Income Tax Credit (EITC), alerting millions of workers--some who don't earn enough to pay income tax--that they qualify for this refundable credit.

Lawmakers also are talking banks and businesses into investing in Individual Development Accounts (IDAs) that can double or triple the money a low-income family can set aside. Others are focusing on teaching financial literacy or adopting the idea of asset-building, which usually incorporates most if not all of these tools. Whatever their tack, policymakers are not just trying to serve a growing group within their constituencies. They are also looking to benefit their local economies and their state's fiscal health, both now and in the future.

BI-PARTISAN EFFORT

In Iowa, Representative Heaton, a Republican, and his colleague Representative Ro Foege, a Democrat, recently launched an EITC outreach campaign to let working families know they are eligible for tax refunds through the federal Earned Income Tax Credit.

"This was a no-brainer for us," says Representative Heaton. "It's money these people have earned. It's really an educational issue."

Nationwide, an EITC refund averages $1,765 for a low-income working family. Foege and Heaton acquired a $100,000 appropriation to provide free tax consultation and preparation for EITC-eligible workers in the greater Des Moines area. Subsequently, EITC filings jumped 30 percent from the previous tax year and refunds increased by $2.6 million. This year the General Assembly doubled the appropriation to expand the program both within Des Moines and throughout Iowa.

"We're putting money back into parents' pockets," says Representative Foege. "This really benefits young families in...