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“The Wealthy, And Everyone Else”: Big Tax Bills For The Poor, Tiny Ones For The Rich

American politics are dominated by those with money. As such, America’s tax debate is dominated by voices that insist the rich are unduly persecuted by high taxes and that low-income folks are living the high life. Indeed, a new survey by the Pew Research Center recently found that the most financially secure Americans believe “poor people today have it easy.”

The rich are certainly entitled to their own opinions — but, as the old saying goes, nobody is entitled to their own facts. With that in mind, here’s a set of tax facts that’s worth considering: Middle- and low-income Americans are facing far higher state and local tax rates than the wealthy. In all, a comprehensive analysis by the nonpartisan Institute on Taxation and Economic Policy finds that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent).

ITEP researchers say the incongruity derives from state and local governments’ reliance on sales, excise and property taxes rather than on more progressively structured income taxes that increase rates on higher earnings. They argue that the tax disconnect is helping create the largest wealth gap between the rich and middle class in American history.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” Matt Gardner, executive director of ITEP, said. “Upside-down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

The 10 states with the largest gap between tax rates on the rich and poor are a politically and geographically diverse group — from traditional Republican bastions such as Texas and Arizona to Democratic strongholds such as Illinois and Washington.

The latter state, reports ITEP, is the most regressive of all. Four years after billionaire moguls such as Amazon’s Jeff Bezos and Microsoft’s Steve Ballmer funded a campaign to defeat an income tax ballot measure, Washington now makes low-income families pay seven times the effective tax rate that the rich pay. That’s right, those in the poorest 20 percent of Washington households pay on average 16.8 percent of their income in state and local taxes, while Washington’s 1-percenters pay just 2.4 percent of their income. Like many of the other regressive tax states, Washington imposes no personal income tax all.

“The problem with our state tax systems is that we are asking far more of those who can afford the least,” concludes ITEM’s state director Wiehe.

By contrast, the states identified as having the smallest gap in effective tax rates are California, Delaware, Minnesota, Oregon and Vermont — all Democratic strongholds and all relying more heavily on progressively structured income taxes. Montana is the only Republican-leaning state ITEP researchers identify among the states with the least regressive tax rates.

Of course, if you aren’t poor, you may be reading this and thinking that these trends have no real-world impact on your life. But think again: In September, Standard & Poor’s released a study showing that increasing economic inequality hurts economic growth and subsequently reduces public revenue. As important, the report found that the correlation between high inequality and low economic growth was highest in states that relied most heavily on regressive levies such as sales taxes.

In other words, regressive state and local tax policies don’t just harm the poor — they end up harming entire economies. So if altruism doesn’t prompt you to care about unfair tax rates and economic inequality, then it seems self-interest should.

 

By: David Sirota, Senior Writer at The International Business Times; The National Meno, January 23, 2015

January 24, 2015 Posted by | Middle Class, Plutocrats, Taxes | , , , , , , | Leave a comment

“We’re No. 1!”: How Government Helps The 1 Percent

You may think that government takes a lot of money from the wealthy and gives it to poor people. You might also assume that the rich pay a lot to support government while the poor pay a pittance.

There is nothing wrong with you if you believe this. Our public discourse is dominated by these ideas, and you’d probably feel foolish challenging them. After Mitt Romney’s comments on the 47 percent blew up on him, conservatives have largely given up talking publicly about their “makers versus takers” distinction. But much of the right’s rhetoric and many of its policies are still based on such notions.

It is thus a public service that the Institute on Taxation and Economic Policy (ITEP) has issued a report showing that at the state and local level, government is, indeed, engaged in redistribution — but it’s redistribution from the poor and the middle class to the wealthy.

It’s entirely true that better-off people pay more in federal income taxes than the less well-to-do. But this leaves out not only Social Security taxes, but also what’s going on elsewhere.

The institute found that in 2015, the poorest fifth of Americans will pay, on average, 10.9 percent of their incomes in state and local taxes and the middle fifth will pay 9.4 percent. But the top 1 percent will pay states and localities only 5.4 percent of their incomes in taxes.

When you think about it, such figures should not come as a surprise. Most state and local governments rely on regressive taxes — particularly sales and excise levies. Poor and middle-class people pay more simply because they have to spend the bulk of their incomes just to cover their costs.

This gets to something else we don’t discuss much: Public policies in most other well-to-do countries push much harder against inequality than ours do. According to the Luxembourg Income Study (LIS), the United States ranks 10th in income inequality before taxes and government transfers. By this measure, Ireland and Britain, and even Sweden and Norway, are more unequal than we are. But after government transfers are taken into account, the good old USA soars to first in inequality. Norway drops to 6th place and Sweden to 13th.

It’s not a matter about which we should be proud to shout, “We’re No. 1!”

Actually, things may be a bit worse for us even on pre-transfer incomes, said LIS Director Janet Gornick, because people in the other rich countries tend to draw their pensions earlier.

The overall story is that we are not very aggressive, with apologies to Joe the Plumber, in spreading the wealth around. “Our inequality is already high because of the low minimum wage, the weakness of unions and very high levels of private-sector compensation at the top,” Gornick, a professor at the Graduate Center of the City University of New York, said in a telephone interview from Luxembourg. “But on top of that, we are redistributing less than other countries and also have lower taxes on the highest incomes, particularly income from capital.”

And at the state and local levels, our governments are exacerbating inequality. The ITEP study concludes that “every single state and local tax system is regressive and even the states that do better than others have much room for improvement.” The five states with the most regressive systems are Washington, Florida, Texas, South Dakota and Illinois.

On its face, the property tax would seem progressive, because big houses are taxed more. But the study finds that on average, “poor homeowners and renters pay more of their incomes in property taxes than do any other income group — and the wealthiest taxpayers pay the least.”

There is also an unanticipated consequence of growing economic disparities: Because states and localities tax the wealthy less, “rising income inequality can make it more difficult for state tax systems to pay for needed services over time. The more income that goes to the wealthy, the slower a state’s revenue grows.”

Political debates are typically driven by clichés , but at the very least, we can expect our clichés to be true. We need to stop claiming that we have a massively redistributive government. We need to stop pretending that poor people are “takers” when they in fact kick in a lot to the common pot. And we need to replace arguments about “big” and “small” government with a debate over what governments at all levels are doing to make our society more just — or less.

 

By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, January 15, 2015

January 16, 2015 Posted by | Economic Inequality, Redistribution, State and Local Governments | , , , , , , , | Leave a comment

“The ‘Texas Miracle’ Fraud”: Turns Out It Involves Taxing The Poor To Help The Rich Get Richer

Remember “The Texas Miracle”? It was the story of how Rick Perry was going to be president because his state, Texas, was doing so much better than all the other states. Texas was doing so well, we were told, because it was very conservative: Low taxes, light regulation, and few pesky unions. We were supposed to compare Texas to California, which, we were told, was an apocalyptic mess because it was run by liberals.

Then we sort of stopped hearing about The Texas Miracle for a while, because Rick Perry forgot how to count and it no longer seemed like he was personally responsible for managing the economy of his vast state, but conservatives still enjoy telling themselves that Texas proves that their economic policy preferences are objectively superior to those of liberals. Except, well, maybe Texas isn’t that miraculous.

At Washington Monthly, Phillip Longman argues that Texas’ growth is fueled primarily by the energy boom and by population growth. And that population growth is not happening because people from other states are fleeing to Texas to avoid high taxes and onerous regulations, but because of immigration from Mexico and a high birthrate. More importantly (and probably obviously, to people who care about such things), the spoils of the Texas miracle have not been shared equally: Economic mobility is higher in California’s major urban areas than in those of Texas. Plus: “Texas has more minimum-wage jobs than any other state, and only Mississippi exceeds it with the most minimum-wage workers per capita.” Texas is falling behind various states in terms of per capita income.

As Longman concludes:

But regardless of its sources, population growth fuels economic growth. It swells the supply and lowers the cost of labor, while at the same time adding to the demand for new products and services. As the population of Texas swelled by more than 24 percent from 2000 to 2013, so did the demand for just about everything, from houses to highways to strip malls. And this, combined with huge new flows of oil and gas dollars, plus increased trade with Mexico, favored Texas with strong job creation numbers.

But for some, the good news on Texas continues apace. J.D. Tuccille, at the libertarian magazine Reason’s Hit & Run blog, points to a paper from the Federal Reserve Bank of Dallas showing that Texas created more high-wage jobs than low-wage ones between 2000 and 2013. Tuccille also points out that “in 2012, ’63,000 people moved from California to Texas, while 43,000 in Texas moved to California.’” (That… actually seems pretty statistically insignificant when we’re talking about the two most populous states in the union, each with more than 25 million residents, but ok, sure.)

Even if it is the case that the Texas miracle is driven primarily by a resource boom and population growth, conservatives and libertarians could still argue that Texas is booming because of their preferred policies. They support exploiting natural resources, and libertarians, at least, support open borders. To use another example, while it’s a fact that North Dakota’s economic boom is happening almost solely because North Dakota happens to be on top of tremendous amounts of very valuable natural resources that recently became easier to extract, conservatives would argue that they are the ones who support drilling that oil, damn the environmental consequences.

But here’s one important fact that Texas’ conservative and libertarian boosters reliably fail to mention (perhaps because they don’t know it): If you’re not rich, Texas is not actually a low-tax state. In fact, most Texans pay more taxes than most Californians. That seems strange and incorrect at first — Texas doesn’t even have an income tax! — but it’s true. Thanks to sales and property taxes, Texas is among the states with the ten most regressive tax systems. Texans in the bottom 60 percent of income distribution all pay higher effective tax rates than their Californian counterparts. Texas’ top one-percent are the ones enjoying the supposed low-tax utopia, paying an effective rate of 3.2 percent. The rate for the lowest 20 percent is 12.6 percent. Kevin Drum has a helpful chart.

This is not unusual for a conservative state. As the Institute on Taxation and Economic Policy says: “States praised as ‘low tax’ are often high tax states for low and middle income families.” So… is this part of the conservative policy package that we are supposed to introduce everywhere to spur growth? Slash taxes for the rich and raise taxes on… the poor and middle class? It seems like it might be difficult to campaign on that.

When “growth” is its own self-justifying goal, creating an economy that only delivers for a privileged few doesn’t really seem like a problem. Still, don’t move to Texas expecting a better life, unless you own a petrochemical refinery.

 

By: Alex Pareene, Salon, March 7, 2014

March 8, 2014 Posted by | Rick Perry, Texas | , , , , , , , | 2 Comments

“A No Good, Very Bad Year”: Louisiana Supreme Court Strikes Down Bobby Jindal’s Voucher Plan

This just isn’t Louisiana Gov. Bobby Jindal’s (R) year. First his plan to end state hospice care was deemed so unpopular, he had to back down. Then his regressive tax plan, which would have eliminated state income taxes altogether, was rejected by his own allies.

And now his school voucher scheme has been rejected by state courts, too.

The Louisiana Supreme Court has ruled that the current method of funding the statewide school voucher program is unconstitutional. Act 2, part of Gov. Bobby Jindal’s 2012 package of education reforms, diverts money from each student’s per-pupil allocation to cover the cost of private or parochial school tuition. The act authorizes both the Louisiana Scholarship Program and the new Course Choice program.

The vote was 6-1, with Justice Greg Guidry dissenting. The plaintiffs in the case include the Louisiana Association of Educators, the Louisiana Federation of Teachers and the Louisiana School Boards Association.

The ruling states that the per-pupil allocation, called the minimum foundation program or MFP, must go to public schools. Justice John Weimer writes, “The state funds approved through the unique MFP process cannot be diverted to nonpublic schools or other nonpublic course providers according to the clear, specific and unambiguous language of the constitution.”

Jindal’s voucher policy has been plagued by a series of problems, including directing public funds to “schools” with truly bizarre lesson plans, and financing religious ministries led by some, shall we say, eccentric pastors.

But in the end, Jindal just couldn’t get around the fact that the state constitution won’t allow him to divert public education funds to private entities.

It’s all part of the governor’s terrible, horrible, no good, very bad year.

 

By: Steve Benen, The Maddow Blog, May 7, 2013

May 9, 2013 Posted by | Education Reform | , , , , , , , , | Leave a comment

   

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