Yeah, another reason to raise taxes on the rich
Via Meteor Blades at Daily Kos is Sam Pizzigati explaining that the top 1 percent of income earners have a ridiculously low state and local tax burden relative to their low and middle-income fellow citizens:
America’s most affluent 1 percent now pay, on average, just 6.4 percent of their incomes in state and local taxes. But they actually pay even less than that, since they can deduct their state and local taxes from their federal tax bill. The state and local tax burden on America’s rich, after taking this offset into account, drops to 5.2 percent.
Middle-income families — to be precise, those families who make up the middle fifth of America’s income distribution — pay, after the federal offset, 9.4 percent of their incomes in total state and local taxes.
America’s poorest families pay even more. Tax collectors take 10.9 percent of the incomes of households in the nation’s bottom 20 percent, more than double the share they take from the incomes of the nation’s top 1 percent.
The Institute on Taxation and Economic Policy paper, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, covers non-elderly households. Incredibly, the study details, some states “ask their poorest residents — those in the bottom 20 percent of the income scale — to pay up to six times as much of their income in taxes as they ask the wealthy to pay.”
Surely we can all agree that it is absurd for low and middle-income Americans to have a state and local tax burden nearly twice that of the very-wealthiest Americans. Not only is this patently unfair as a matter of justice — the low tax-burden on the wealthy has more to do with their over-representation in the political system than it does with any virtue/productivity on their part — but it’s also bad policy. According to the CBPP, 35 states are facing budget shortfalls for the 2010 fiscal year, and while I don’t know the details in each state, I’m confident that a modest tax increase on the wealthiest residents of those states would go a long way in fixing the shortfalls without cutting needed services to poor and marginalized Americans in those states.
That said, I can also see why state-based tax increases would be a terrible idea; raising taxes is a surefire way of driving your most lucrative tax base to another, low-tax state. Better would be for the federal government to either raise taxes on the wealthiest Americans (which I discussed here) or repeal the Bush tax cuts, which have been responsible for more than $2 trillion in loss revenue since their implementation. Repealing the cuts (thus upping the tax burden for the wealthiest Americans to something a bit more reasonable), and using the revenue gains to fund direct aid for states makes a lot more sense and is a lot more appealing — as a matter of policy — than having the states shoot themselves in the foot by raising taxes.