News Intro Text
[Institute on Tax and Economic Policy, September 15, 2016]
Date
News Item Content
<p>The share of Americans living in poverty has decreased, yet remains high, according to data released this month by the U.S. Census Bureau. In 2015, the national poverty rate fell from 14.8 to 13.5 percent.[1] However, the poverty rate remains somewhat higher than it was in 2007, before the Great Recession, indicating that recent economic gains have not yet reached all households and that there is much room for improvement. The 2015 measure translates to over 43 million – around 1 in 7 – Americans living in poverty. No state experienced an increase in poverty while the rate fell in 23 states.[2]</p>
<p>The Supplemental Poverty Measure (SPM) released alongside the official poverty measure, demonstrates that tax codes can be used as an effective poverty-fighting tool. At 14.3 percent it is higher than the official poverty rate, however, it is lower than it would have been in the absence of two federal credits – the Earned Income Tax Credit (EITC) and refundable portion of the Child Tax Credit. In 2015, the combined impact of the two credits decreased the SPM rate from 17.2 to 14.3 percent, lifting 9.2 million people – 4.8 million of whom are children– out of poverty.[3]</p>
<p>Astonishingly, tax policies in virtually every state make it harder for living in poverty to make ends meet. When all the taxes imposed by state and local governments are taken into account, every state imposes higher effective tax rates on poor families than on the richest taxpayers.</p>
<p>Despite this unlevel playing field states create for their poorest residents through existing policies, many state policymakers have proposed (and in some cases enacted) tax increases on the poor under the guise of “tax reform,” often to finance tax cuts for their wealthiest residents and profitable corporations.</p>
<p>State and local tax systems typically make things harder for families living in poverty. A 2015 ITEP report, <a href="http://www.itep.org/whopays/"><strong><em>Who</em></strong><strong><em> Pays? A Distributional Analysis of the Tax Systems in All 50 States</em></strong></a>, found that the poorest twenty percent of Americans paid on average 10.9 percent of their incomes in state and local taxes. Middle-income taxpayers didn’t fare much better, paying an average of 9.4 percent of their incomes toward those taxes. But when it comes to the wealthiest one percent, ITEP found they paid an average of just 5.4 percent of their incomes in state and local taxes.</p>
<p>Nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. This “soak the poor” strategy from a budgeting perspective does not yield much revenue compared to modest taxes on the rich. It also pushes low-income families further into poverty and increases the likelihood that they will need to rely on safety net programs.</p>
<p>There is a better approach. Just as state and local tax policies can push individuals and families further into poverty, there are tax policy tools available that can help them move out of poverty. In most states, a true remedy to improve state tax fairness would require comprehensive tax reform. Short of this, lawmakers should use their states’ tax systems as a means of providing affordable, effective and targeted assistance to people living in or close to poverty in their states. Through the use of tax policy tools, state lawmakers can take steps to improve the standard of living for low-income residents. Similar to the way in which the Supplemental Nutrition Assistance Program (SNAP) helps families put food on the table, thoughtful changes to state tax codes can help struggling families pay for necessities.</p>
<p>This report presents a comprehensive overview of anti-poverty tax policies, surveys tax policy decisions made in the states in 2016, and offers recommendations that every state should consider to help families rise out of poverty. States can jump-start their anti-poverty efforts by enacting one or more of four proven and effective tax strategies to reduce the share of taxes paid by low- and moderate-income families: state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.</p>
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<a href="http://itep.org/itep_reports/2016/09/state-tax-codes-as-poverty-fighting-tools-3.php#.V9wEGmXmu3U">MORE>></a></div>
<p>The Supplemental Poverty Measure (SPM) released alongside the official poverty measure, demonstrates that tax codes can be used as an effective poverty-fighting tool. At 14.3 percent it is higher than the official poverty rate, however, it is lower than it would have been in the absence of two federal credits – the Earned Income Tax Credit (EITC) and refundable portion of the Child Tax Credit. In 2015, the combined impact of the two credits decreased the SPM rate from 17.2 to 14.3 percent, lifting 9.2 million people – 4.8 million of whom are children– out of poverty.[3]</p>
<p>Astonishingly, tax policies in virtually every state make it harder for living in poverty to make ends meet. When all the taxes imposed by state and local governments are taken into account, every state imposes higher effective tax rates on poor families than on the richest taxpayers.</p>
<p>Despite this unlevel playing field states create for their poorest residents through existing policies, many state policymakers have proposed (and in some cases enacted) tax increases on the poor under the guise of “tax reform,” often to finance tax cuts for their wealthiest residents and profitable corporations.</p>
<p>State and local tax systems typically make things harder for families living in poverty. A 2015 ITEP report, <a href="http://www.itep.org/whopays/"><strong><em>Who</em></strong><strong><em> Pays? A Distributional Analysis of the Tax Systems in All 50 States</em></strong></a>, found that the poorest twenty percent of Americans paid on average 10.9 percent of their incomes in state and local taxes. Middle-income taxpayers didn’t fare much better, paying an average of 9.4 percent of their incomes toward those taxes. But when it comes to the wealthiest one percent, ITEP found they paid an average of just 5.4 percent of their incomes in state and local taxes.</p>
<p>Nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. This “soak the poor” strategy from a budgeting perspective does not yield much revenue compared to modest taxes on the rich. It also pushes low-income families further into poverty and increases the likelihood that they will need to rely on safety net programs.</p>
<p>There is a better approach. Just as state and local tax policies can push individuals and families further into poverty, there are tax policy tools available that can help them move out of poverty. In most states, a true remedy to improve state tax fairness would require comprehensive tax reform. Short of this, lawmakers should use their states’ tax systems as a means of providing affordable, effective and targeted assistance to people living in or close to poverty in their states. Through the use of tax policy tools, state lawmakers can take steps to improve the standard of living for low-income residents. Similar to the way in which the Supplemental Nutrition Assistance Program (SNAP) helps families put food on the table, thoughtful changes to state tax codes can help struggling families pay for necessities.</p>
<p>This report presents a comprehensive overview of anti-poverty tax policies, surveys tax policy decisions made in the states in 2016, and offers recommendations that every state should consider to help families rise out of poverty. States can jump-start their anti-poverty efforts by enacting one or more of four proven and effective tax strategies to reduce the share of taxes paid by low- and moderate-income families: state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.</p>
<div>
<a href="http://itep.org/itep_reports/2016/09/state-tax-codes-as-poverty-fighting-tools-3.php#.V9wEGmXmu3U">MORE>></a></div>