Thursday, January 15, 2015

News of the Obvious: State and Local Taxes are Regressive

The Institute on Taxation and Economic Policy ran an analysis that most folks with a lick of common sense and a bit of understanding about political interests would figure out on their own, that state an local taxes are pretty regressive, and cost poor folks a lot larger slice of their income than they cost wealthy people.  I mainly skimmed the report and looked at the graphics, but I seriously doubt that conservatives will punch many holes in their analysis.  Here is a chart showing the impact of state and local taxes on different income brackets nationwide:

This chart is a little more useful when your state's Republican party proposes "tax reform" or "income tax cuts."  It demonstrates who benefits and who is harmed by various tax changes:

Yeah, it is shocking that when states like Kansas and Ohio increase sales taxes and cut income taxes it is the wealthiest residents who benefit, and the poorest residents who are harmed.  Same goes for cigarette tax increases.  Whodathunkit?  Actually, Ohio is even more regressive than the national average, in spite of a somewhat progressive income tax:

I would hypothesize that one reason for this is because numerous municipal and school district income taxes (which many other states don't have) hit earned income much harder than unearned income (dividends and capital gains, for instance).  I only pay city income tax on the fairly small portion of my income coming from my town job.  Also, Kasich's entirely stupid plan to exempt half of the first $250,000 in income from pass-through entities keeps me from paying state income tax on 50% of the income from my farm partnership with dad.  Here are a few of the explanations from the report:

• Kansas enacted more changes to its personal income tax on top of those already passed in 2012. Tax rates are gradually reduced to 2.3 and 3.9 percent and both standard and itemized deductions are pared back. The food sales tax rebate was reinstated, but made nonrefundable. If revenue targets are reached in future years, the income tax could be repealed entirely. Kansas also increased its sales tax from 5.7 to 6.15 percent.
• North Carolina replaced its graduated personal income tax rate structure with a flat rate of 5.75 percent and enacted several other changes to the tax including: the elimination of all credits except for the child tax credit (this included allowing the state’s Earned Income Tax Credit to expire), elimination of per­sonal exemptions, elimination of a $50,000 deduction for business pass-through income, an increased standard deduction, eliminating most itemized deductions and subjecting property taxes and mortgage interest to a $20,000 cap and allowing unlimited charitable contribution deductions. The package also expanded the sales tax base, increased sales taxes on electricity, and phases-in a corporate income tax rate cut that will eventually bring the rate from 6.9 to 3 percent.
• Ohio reduced personal income tax rates across the board and exempted 50 percent of business pass-through income from the tax (capped at the first $250,000). The state also enacted a very limited non­refundable EITC equal to 5 percent of the federal credit in 2013 and expanded it to 10 percent in 2014. At the same time, the state’s sales tax was increased from 5.5 to 5.75 percent and its base was expanded.
• The District of Columbia cut income tax rates for middle-income residents and increased the standard deduction. Further rate cuts, as well as increases in the standard deduction and personal exemption, could take effect if revenue grows sufficiently quickly. The District of Columbia also phased-out its per­sonal exemption for high-income taxpayers and made permanent its 8.95 percent income tax bracket on high-income earners. The city’s EITC was expanded for childless workers and its property tax cir­cuit breaker was enhanced. The business franchise tax rate was cut from 9.975 to 9.4 percent, and could see further cuts to 8.25 percent contingent on revenue growth. DC’s sales tax base was also expanded, while its rate was lowered from 6.0 to 5.75 percent. The city also reformed its gas tax so that the rate can grow alongside gas prices in the future.
It is interesting to see how Republican (and ALEC-backed) tax changes seem to go from one state to another, like some kind of hideous virus.  For instance, Kansas went with the pass-through tax exemption, then Ohio and Missouri followed suit.  Ohio got rid of the business personal property tax, now Michigan is following.  Very rarely do these changes benefit people at the lower end of the income spectrum.

No matter how you figure it, people making less than $250,000 and voting Republican are suckers.

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