Plan B Forum

States Consider Increasing Taxes for the Poor and Cutting Them for the Affluent

FEB. 13, 2015

Shaila Dewan

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A number of Republican-led states are considering tax changes that in many cases would have the effect of cutting taxes on the rich and raising them on the poor.

Conservatives are known for hating taxes but particularly hate income taxes, which they say have a greater dampening effect on growth. Of the 10 or so Republican governors who have proposed tax increases, nearly all have called for increases in consumption taxes, which hit the poor and middle class harder than the rich.

Favorite targets for the new taxes include gas, e-cigarettes, and goods and services in general. Gov. Paul R. LePage of Maine, who wants to start taxing movie tickets and haircuts, is also proposing a tax break for the lowest-income families to relieve some of the pressure.

At the same time, some of those governors — most notably Mr. LePage, Nikki R. Haley of South Carolina and John R. Kasich of Ohio — have proposed significant cuts to their state income tax. They say that tax policies that encourage business growth provide more jobs and economic benefits for everyone.
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Gov. Paul LePage of Maine wants to decrease income taxes and increase sales taxes. Credit Robert F. Bukaty/Associated Press

A new report suggests that these states could be creating financial problems down the road. The strategy of shifting from income taxes to consumption taxes has caused huge budget shortfalls in Kansas and, more recently, North Carolina, which announced a budget shortfall of nearly half a billion dollars.

One reason, according to the report from the Keystone Research Center and Good Jobs First, two left-leaning think tanks, is that just as the tax burden has shifted away from the wealthy, the wealthy have received a huge share of income growth in recent years.

So this is what compassionate conservatism looks like? Where is the ecumenical community on this? Do we have no basic moral responsibility...

While the bottom fifth of earners pay more than 10 percent of their income in state and local taxes, the top 1 percent pays closer to 5 percent, the Institute on Taxation and Economic Policy estimates. Percentage of income is, of course, only one way to measure the tax burden — in sheer dollar terms, the wealthy pay far more than the poor. Still, the Keystone report’s authors, Greg LeRoy and Stephen Herzenberg, argue that a less regressive tax code is the answer to state budget woes, in what is basically a sophisticated pitch for a millionaire’s tax. “It’s time to have a clear debate about the impact of inequality on public finance,” Mr. LeRoy said.

Taxing the top fifth of earners at the same rate as the middle class would bring in $200.5 billion to state and local coffers, the report says. Taxing just the top 1 percent at the same rate as the middle class would bring in $88.5 billion, 10 times the amount needed to restore five years’ worth of cuts to higher education. The report also breaks it down state by state, saying that Texas and Florida, at the top of the list, would raise about $40 billion each if they taxed the top 20 percent at the middle-class rate, while Kansas and North Carolina would raise about $2 billion each.

“We wanted to connect the dots for people,” said Mr. Herzenberg, an economist at Keystone. “If more money’s flowing to the top, and the top folks are taxed at lower rates, inevitably that’s a problem for state budgets.”

Favorite targets for the new taxes include gas

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