One Big Hole
The impending state budget crisis is something that has been covered in depth here. Just to remind everyone just how bad it's going to get, a picture that says a couple hundred billion dollars.
That comes out to an average of $150 billion a year between 2009-12. To put that into context, that's just a little under the 2008 Gross State Product for Oregon. Which means that nationwide, each year, the hole in state budgets is almost big enough to fit the entire economy of the state of Oregon into. Drawing back from the shock value of that image, it's really no f*%$#!# wonder that this is the case. The reason why: Our deeply regressive state tax systems.
Screw the poor policies
A recent report out by the Institute on Taxation and Economic Policy (ITEP) explains:
This study assesses the fairness of each state’s tax system, measuring the state and local taxes paid by different income groups in 2007 (including the impact of tax changes enacted through October of 2009) as shares of income for every state and the District of Columbia. The report provides valuable comparisons among the states, showing which states have done the best — and the worst — job of providing a modicum of fairness in their tax systems overall. The study’s main finding is that nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. That is, when all state and local income, sales, excise and property taxes are added up, most state tax systems are regressive.
Let that sink in.
Rome Um... a number of states are burning down. State workers are losing jobs, left and right, and a number of state university systems are contemplating tuition hikes that will force a big chunk of the working class, face it folks you either live by wealth or work (middle class=working class with a social safety net). We have state tax systems in which the wealthy refuse to pay their fair share;, and yet it's supposed to be some sort of mystery why this is happening. You've got to appreciate how craven the masterminds, from neo-liberal thinktanks, have to be to create a tax system in which those who receive the greatest benefits of our system are those who sacrifice the least for its upkeep.
What am I talking about?
This is what I'm talking about. The effective state tax rate(Sales, Property, and Income) for the top 1% is 5.2 percent of their total income. For the bottom 20%? 10.9 percent of their total family income. That's right. The top 1% of earners pay less than half the state tax rate of those in the bottom 20%. Remember that we're talking about 3 different kinds of taxation here: Income, Property, and Sales/Excise taxes. The next time that you here some jackoff come along with some fair tax bullshit about how a national sales tax could save the country, show them this table. Then ask them what exactly is fair about sticking those for whom an extra dollar or two means the difference between making rent, and trying to find a cardboard box to make a pup tent, with the bill for the services we all enjoy. This is the single most important reason that a national sales tax is a bad, bad, bad idea. And to finish that "low tax" canard off show them this graphic. "Low tax" states that balance the budget with sales and property taxes are only low tax for the wealthy. What follows is a table of the highest effective tax rates on the lowest income citizens.
Hmm... Those sure look like high tax states to me.
The bottom line is that many so-called “low-tax” states are high-tax states for the poor, and most of them do not offer a good deal to middle-income families either. Only the wealthy in such states pay relatively little.
What is to be done? Once upon a time, when a bank robber was asked why he robbed banks, he famously said: "Because that's where the money is." State government obviously aren't as smart as this particular bank robber. Or, more likely. We've got a financial-political complex that kills off any attempt to restore fair taxation in committee. Yes, we've got a crisis on our hands, but it's also an opportunity. It's time for the President, and the Congress, to fix this mess. How?
Go all Libby Dole on the asses.
During the early 1980s a number of states still had their legal drinking age at 18, and this really got the Reagan administration up in commotion. They wanted to show recalcitrant states who was boss, and they did. The National Minimum Drinking Age Act of 1984 (23 U.S.C. § 158), made it so that states which refused to raise their legal drinking age to 21 would lose 10% of their federal highway funding. South Dakota was not pleased, and challenged the constitutionality of the legislation in the US Supreme Court.
In the end the case found that:
Congress may attach conditions on the receipt of federal funds, and has repeatedly employed the power "to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives.
This is the key. A number of states are getting ready to line up for money from the federal government. Many state unemployment funds are being kept solvent by loans from the federal government. South Dakota vs. Dole made clear that it is within the power of the federal government to attach conditions to the fund transfers to the states in order to further public policy.
It's time that Congress and the President go all Libby Dole on these state governments. Either they establish income tax regimes that make the wealthy pay their fair share, or they lose access to federal fund transfers.
Beyond the fairness issue, reformulating state tax regimes so as to take the burden off of low income residents and make the wealthy carry their fair share will have a tremendous multiplier effect.
When you put an extra $10 a week into the hands of someone whose gross pay is about $300 (40 hrs a week at min. wage) they will spend it. And they will spend it locally, stimulating they economy at the ground level by generating demand. The option is obvious. Congress and the President can have an immediate, and lasting, effect on the lives of millions of lower income Americans. Doubtless generating a great deal of gratitude going into the 2010 midterms. All the while, addressing a fundamental limit on growth in our economy.