WASHINGTON -- Newly released U.S. Census data reveal that poverty levels have skyrocketed, but in most states, the tax systems disproportionally burden the poor. Most states also impose tax structures similar to what current Republican presidential candidates are advocating, and experts warn these should serve as cautionary tales against implementing them on a national level.
Contrary to the rhetoric from Republicans that half of Americans are not paying income taxes, at the state level the poor are paying more than twice as much of their income toward taxes than the super rich. At the same time poverty levels haven risen to highs not seen since 1993, with 15.1 percent of Americans officially classified as poor.
But those in the bottom 20 percent pay closer to 12 or 13 percent of their income in state and local taxes on average. The top 1 percent of income earners only pay 7 to 8 percent, according to the Institute on Taxation & Economic Policy.
While the lowest 20 percent often pay 7 percent of their income in sales and excise taxes each year, the top 1 percent pay less than 1 percent of their income toward sales taxes.
The difference in shares of income put to property taxes is only slightly better.
Federal, state and local taxes combined are, on average, at their lowest level since the 1950s, according to the Tax Policy Center. But the distribution today is significantly less progressive. This trend hasn't changed much in recent decades either. Back in 1996, Citizens for Tax Justice found people with the lowest income were putting more of their income toward state and local taxes than the wealthy.
According to Matt Gardner, executive director at the Institute on Taxation and Economic Policy (ITEP), most state tax systems are regressive.
"The lack of fairness at the state level is really quite avoidable," Gardner said. "Every state could do something to make their income tax more progressive."
States largely rely on income, sales and excise taxes, and property taxes for their revenue. There's no real way for sales, excise or property taxes to not be regressive, so income is the one area where there's room for states to make their tax burdens more fair, Gardner said.
G. William Domhoff, research professor at University of California at Santa Cruz, found the rich have the least progressive state tax rates.
"If we break the top 20 percent down into smaller chunks," Domhoff writes, "we find that progressivity starts to slow down, then it stops, and then it slips backwards for the top 1 percent."
Yet, despite the strong public support for increasing taxes on the wealthiest Americans, lawmakers have often sought to keep rates down.
In the current debate among GOP presidential candidates, nearly all have advocated fewer tax brackets, lower rates, or imposing a national sales tax. Gov. Rick Perry (R-Texas), a presidential candidate, has boasted about his state having no income tax.
But states that do not collect income tax rely on the poor to make up a lion's share of the state's revenue, since they rely more on property, sales and excise taxes -- excise being those extra taxes on things like gasoline, cigarettes and alcohol. An analysis by ITEP concludes these excise taxes are 22 times harder on the poor than the rich, and 11 times harder on middle-income families than the rich.
Other candidates, like Herman Cain, are advocating imposing a flat income tax and a national sales tax. This would be a huge break for the top income-earners while bearing on down on lower- and middle-class workers with force. "From a fairness perspective, [using a flat tax rate] is the most damaging choice you can make," Gardner said.
But many states use a flat tax, Gardner said, and those that don't have tax brackets that are very close together. One example is Alabama, which puts the highest tax bracket at individuals making as little as $6,000 a year.
The left-leaning Citizens for Tax Justice argue that states can use their tax codes as weapons against poverty. Specifically, one method they advocate is using a state version of the Earned Income Tax Credit as a cheap way to give low-income families a break.
However, while poverty rose over the past year -- 20 states saw their poverty rate increase 20 percent or more -- some states raised taxes on the poor. Maine, Minnesota, Michigan and Wisconsin effectively raised taxes on the working poor by reducing targeted tax credits. Seven other states offer no anti-poverty tax credits at all.
Republican presidential candidate Jon Huntsman's tax plan would eliminate deductions, including those that help the working poor.
These measures are sought out of the idea closing these tax deductions would bring in more revenue for the state. While it would do just that, Gardner said it's also done at the expense of the lowest income earners.
"The fact remains that as the economy continues to stagnate, as poverty rates continue to go up, lawmakers are standing there with a shovel and have the opportunity to fill in some of that hole. But instead they're making it deeper," Gardner said.
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