Nov 19, 2009

Report confirms the state budget is balanced on the backs of the poor and the disappearing middle class

A recently released study by the non-partisan and non-profit Institute on Taxation and Economic Policy (ITEP) confirmed what most people already know: that the poor and middle class pay the freight for government services.

The ITEP released a study yesterday called, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States” that concluded that by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy. That can’t be a surprise to anyone, and yet Republicans still try to push the myth that the wealthiest 1 percent still need tax breaks.

“In the coming months, lawmakers across the nation will be forced to make difficult decisions about budget-balancing tax changes—which makes it vital to understand who is hit hardest by state and local taxes right now,” said Matthew Gardner, lead author of the study, in the press release announcing the study results. “The harsh reality is that most states require their poor and middle income taxpayers to pay the most taxes as a share of income.”

The rich, defined as those with average annual incomes of $1.1 million, typically pay about 6.4 percent toward taxes, the study said. While non-elderly residents who make less than $15,000 per year typically pay about 9 percent of their income toward taxes and those who make between $32,000 and $54,000 pay nearly 10 percent, the very rich pay about a third less.

In fact, Michigan was named part of the “Terrible Ten” as one of the states with the most regressive tax systems. We join Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Pennsylvania, Nevada and Alabama. According to the press release, these “Terrible Ten” states ask poor families—those in the bottom 20 of the income scale—to pay almost six times as much of their earnings in taxes as do the wealthy.

The report identifies several factors that make Michigan and these states more regressive than others:
The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate. In fact, Michigan is only one of six states with a flat income tax rate.
These states typically have an especially high reliance on regressive sales and excise taxes.

These states usually do not allow targeted low-income tax credits such as the Earned Income Tax Credit; these tax credits are especially effective in reducing state tax unfairness. Here in Michigan, Republicans want to restore the damaging cuts to education by delaying a scheduled increase in the Earned Income Tax Credit.

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