A review of"Who Pays? A Distributional Analysis of the Tax Systems in All

[papau]

Who Pays? A Distributional Analysis of the Tax Systems in All 50 States 2nd Edition

http://www.itepnet.org/wp2000/text.pdf

This is an interesting report on what one gets when you work hard to avoid "punishing success" - meaning the State and local tax system is extra nice to the rich rather than a "proportional" or, God forbid, a "Progressive" Tax structure.

The average state and local tax rate on the best-off one percent of families is 7.3 percent before accounting for the tax savings from federal itemized deductions. After the federal offset, the effective tax rate on the best-off one percent is a mere 5.2 percent. The average tax rate on families in the middle 20 percent of the income spectrum is 9.9 percent before the federal offset and 9.6 percent after—almost twice the effective rate that the richest people pay - while the average tax rate on the poorest 20 percent of families is 11.4 percent, more than double the effective rate on the very wealthy.

GOP control of the majority of state houses over the last few years has led to changes in state and local taxes that have made state tax systems even more regressive. The report notes "While lawmakers in many states have taken steps to provide low-income tax relief through earned-income tax credits and similar mechanisms, these progressive changes have often been insufficient to offset the growing use of regressive consumption taxes—and many states have not enacted substantial low-income tax relief at all. At the same time, many states have actually lowered taxes on their best-off residents. State and local taxes in the United States as a whole rose slightly as a share of income from 1989 to 2002, as states were required to assume additional program responsibilities abdicated by the federal government due to its budget problems. Fair enough. But because of the way those tax increases were structured, state and local taxes rose most on poor and middle-income families, and least—or not at all—on upper-income families."

So a LOW TAX STATE needs to explain “low tax” for whom ? ...since low tax overall as in Washington, Texas and Florida does not mean low tax for poor familie. Indeed this report shows the job done on the poor by a states’ disproportionate reliance on sales and excise taxes. "State and local income taxes are typically progressive. On average, poor families pay only a tenth of the effective income tax rate that the richest families pay, and middle-income families pay about half of the effective rate on the well-to-do. Alone among these three tax types, income taxes usually require the wealthiest taxpayers to pay the highest effective tax rate. Property taxes, including both taxes on individuals and business taxes, are usually somewhat regressive. On average, poor families pay more than any other income group —and the wealthiest taxpayers pay the least. A state’s property tax base typically includes only a subset of total wealth: primarily homes and business real estate. Sales and excise taxes are very regressive. On average, poor families pay almost eight times as high a share of their income in these consumption taxes as do the best-off families, and middle-income families pay more than four times the rate of the wealthy.Two of the most regressive state income tax loopholes are capital gains tax breaks and deductions for federal income taxes paid. In combination with a flat (or only nominally graduated) rate structure, these tax breaks can sometimes create the odd—and unfair—result of the highest income taxpayers paying a lower share of their income in income taxes than middle-income taxpayers."

I thought the high "Inequality" states (poor paying higher rate than rich judged by what rate the poorest 20%, middle 60%, and top 1% paid) were very interesting:
Washington 17.6% 11.2% 3.3%
Florida 14.4% 9.8% 3.0%
Tennessee 11.7% 8.9% 3.4%
South Dakota 10.0% 8.4% 2.3%
Texas 11.4% 8.4% 3.5%
Illinois 13.1% 10.5% 5.8%
Michigan 13.3% 11.2% 6.7%
Pennsylvania 11.4% 9.0% 4.8%
Nevada 8.3% 6.5% 2.0%
Alabama 10.6% 9.6% 4.9%

While the obvious result of not having a broad-based personal income tax (or a flat rate or nearly flat rate income tax), or of having a heavy reliance (over 50% of State revenue in some cases compared to a national average of 35%) on regressive sales and excise taxes is that the poor get screwed, I found it interesting how the non-tax revenue sources such as user fees and charges do not change the result. I wish a bit of analysis had been applied to how those states that depend heavily on severance taxes on the extraction of natural resources treated their poor, but the effect of this source of revenue was not included in this analysis.

I thought the Massachusetts (Taxachusetts - my state) State & Local Taxes in 2002 were of great interest! :-)
Shares of family income for non-elderly taxpayers
Income Lowest Second Middle Fourth Top 20% Group 20% 20% 20% 20% Next 15% Next 4% TOP 1% Income Less than $19,000 – $34,000 – $56,000 – $90,000 – $182,000 – $413,000 Range $19,000 $34,000 $56,000 $90,000 $182,000 $413,000 or more

Average Income in Group $10,500 $26,800 $44,400 $71,600 $121,100 $263,400 $1,382,600
Sales & Excise Taxes 5.4% 3.9% 2.9% 2.3% 1.8% 1.2% 0.6%
General Sales—Individuals 2.0% 1.6% 1.4% 1.2% 0.9% 0.6% 0.3%
Other Sales & Excise—Ind. 1.9% 1.0% 0.7% 0.5% 0.3% 0.2% 0.1%
Sales & Excise on Business 1.6% 1.2% 0.9% 0.7% 0.5% 0.3% 0.2% Property Taxes 3.0% 2.5% 2.8% 3.1% 2.8% 2.4% 1.1%
Property Taxes on Families 3.0% 2.4% 2.8% 3.0% 2.7% 2.2% 0.8%
Other Property Taxes 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.3%
Income Taxes 0.9% 2.9% 3.5% 3.8% 4.3% 4.6% 5.1%
Personal Income Tax 0.8% 2.9% 3.5% 3.8% 4.2% 4.6% 4.8%
Corporate Income Tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.2%
TOTAL TAXES 9.3% 9.2% 9.2% 9.3% 8.8% 8.2% 6.8%
Federal Deduction Offset –0.0% –0.1% –0.6% –1.1% –1.6% –2.0% –2.2%
TOTAL AFTER OFFSET 9.3% 9.1% 8.6% 8.2% 7.3% 6.2% 4.6%
Note: Table shows 2002 tax law at 2000 income levels.

Indeed compared to Washington State:

TOTAL AFTER OFFSET 17.6% 12.8% 11.1% 9.2% 7.4% 5.2% 3.1%

I rather liked the Mass tax law!


The data uses as good or better sources/methods than the Federal Government studies - but that did not surprise me. As stated in the report "The ITEP model is a tool for calculating revenue yield and incidence, by income group, of federal, state and local taxes. It calculates revenue yield for current tax law and proposed amendments to current law. Separate incidence analyses can be done for categories of taxpayers specified by marital status, the presence of children and age. In computing its estimates, the ITEP model relies on one of the largest databases of tax returns and supplementary data in existence, encompassing close to three quarters of a million records. To forecast revenues and incidence, the model relies on government or other widely respected economic projections. The ITEP model’s federal tax calculations are very similar to those produced by the congressional Joint Committee on Taxation, the U.S. Treasury Department and the Congressional Budget Office (although each of these four models differs in varying degrees as to how the results are presented). The ITEP model, however, adds state-by-state estimating capabilities not found in those government models."

If the media ever allows us to get back to fact based political discussions, this report will be invaluable.

[jody]

1. Thanks for the link. n/t

[liberal N proud]

2. Great data

Thanks