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.
Why not?
Comments
sometimes I think the movement to states rights is about
now having 50 different jurisdictions to try to find the latest screw job in.
I know many states were busy building "day labor" centers on the taxpayer's dime, while cutting people from Medicaid.
So, have you checked out this Torbin Tax Geithner threw it under the bus.
I've written about it and gotten blasted, in particular by JV because he is a day trader for a living, but I still think this would be a great tool, but it needs to be done globally.
It's a transaction tax on market trades and it's gaining a little more momentum in Congress.
Is the primary reason these state taxes are so regressive due to their sales taxes or the infamous loopholes so the rich do not pay, aka 15% profits for hedge funds and so on.
These guys only looked at
sales, property, and income taxes, so I don't know about the corporate tax angle.
I'm at the top of the rec list over at Daily Kos. Glad to see that something came of my day else than not studying for the korean test that I need to.
if you cross posted
Did you put a "originally posted on The Economic Populist" with a link?
We need that to fake out the Google as well as drive those serious about econ over here.
I never cross post over there personally because these days we're way more linked up to the economics blog community than the political sites. Just a FYI, but it does give a different bunch of readers.
I'll imagine then it's sales and property. In WA they have no income tax, which explains why it's so regressive.
no problem paying for war
According to a report on Google (AFP):
“US lawmakers: New tax should pay for Afghan war”
Influential US lawmakers on Thursday called for levying a new income tax to pay for the war in Afghanistan, warning its costs pose a mortal threat to efforts like a sweeping health care overhaul…"Share The Sacrifice Act of 2010"
The group included House Appropriations Committee Chairman Dave Obey; Representative John Murtha, who chair that panel's defense subcommittee; and House Financial Services Committee Chairman Barney Frank.
In the same vain:
"Upper-Bracket Tax May Be Needed for Afghan War Cost, Levin Says
Nov. 21 (Bloomberg) -- Higher-income Americans should be taxed to pay for more troops sent to Afghanistan and NATO should provide half of the new soldiers, said Carl Levin, chairman of the Senate Armed Services Committee.
An “additional income tax to the upper brackets, folks earning more than $200,000 or $250,000” a year, could fund more troops, Levin, a Michigan Democrat, said in an interview for Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend.
All this is from the leaders of the party that came to power last year running against “Bush’s War”. School districts are cutting budgets,10’s of millions have no health insurance etc. etc, and these ‘Liberals’ what to raise taxes for a war that no one can explain. Indeed, no one seems to know how to fight let alone win.
As I have written in these comments sections before, the economics of empire is completely ignored in all the economic discourse. We study symtoms and ignore the disease!
careful what you wish for
Get post ‘manfrommiddletown’ (as usual).
But, be careful what you wish for. I expect that when the Feds go ‘Libby Dole’ on the states it will take the form of cut your expenses (e.g. school budgets, etc) ‘Or Else’ no money.
Define Fair
go ahead and define a fair-tax? how about I pay X-dollars, flat. As does everyone else. I say that is pretty dang fair.
So then
what you are saying is that an extra dollar has the same value to someone who makes minimum wage as someone who makes million dollars every week?
Cause that's the argument that you're making.
Economists call it the declining marginal utility of income.
The policy implication of this being that its more important that all be able to eat than that some be able to have a summer house in the Hamptons.
you should have seen the ones I deleted
Anonymous comments are moderated and I saw a slew of real "slime" against anyone who is the working poor. (I didn't allow them to post).
It's amazing but also a sign of new class warfare.....but the basically discriminatory claims of people who are poor is what I didn't allow to post on the site. Let me just say it's astounding how people prey upon the vulnerable...kind of a kick 'em when they're down....
I guess that's important so they can alleviate their guilt.
poor rich folk
I listen to daytime talk radio whenever I’m in the car. It is all very conservative right wing. And, I’m amazed at how the hosts of these programs lament the ‘poor’ over taxed RICH people. It’s a constant theme for national programs and local. Given the popularity of these programs, it seems that a large number of Americans who listen to them agree.
A second popular theme is ‘illegal immigrants’, who are the problem with the economy. If we get rid of them and cut the taxes for the rich everything will be fine. Interesting!
it's pretty strange
but it's over on reddit, see the next below comment so rate it up.
In truth, illegal immigration does oversupply the labor market with cheap labor and it used to be a major labor issue...to stop it. Why they are for it these days doesn't make a lot of labor economic sense (except to expand the union membership itself), so go figure. But considering we have Glenn Beck and Keith Olbermann supposedly representing America's "public opinion", lots of things are upside down.
The study is biased, as is your article.
http://www.reddit.com/r/economy/comments/a7bzb/the_bottom_line_is_that_m...
Bob can
we rename Anonymous Drive-by so that it reads Unknown Coward?
Seriously.
If you want to have a discussion, try posting actual text instead of hyperlinking to a hit piece that basically suggests that because this study was produced by people with whom you disagree that it's somehow wrong. That did nothing but prove that you don't have a real argument to make.
If you want to have a discussion, try identifying some sort of methodological or conceptual error in the study.
LOL
The only reason I left that comment through was because you were going to the top of reddit.
If you see those "share" buttons, you can submit posts to other sites and reddit is a good one. Somebody submitted your post to reddit and it is getting a lot of reads.
but I can try to find something more appropriate for anonymous comments.
I am a coward? You could
I am a coward? You could have just as easily created an account at reddit and debated me there. At least then it would have been seen by more than two people.
But no thanks. I learned recently that debating liberals makes about as much sense as debating a brick wall. I'm quite content to point out that your source is as biased as you are and leave it at that. I'm sure I could find numerous errors in this 'study,' but experience has shown that debating liberals is generally not a productive use of my time. The vast majority of you prefer to stick your heads in the sand when your ideology is in danger, and are as incapable of critical thought as the typical third grader - maybe even less so. If you were an exception to this, you would not have used a study created by an organization with such a blatant conflict of interest in the first place - or, at the very least, you would have presented an alternate viewpoint. You are doing little more than pushing a political agenda; for you, objectivity is of secondary importance, if it is important to you at all, which I doubt.
Good luck in your propagandizing though. I wish I could say that you will need it, but since critical thinking skills are such a rarity nowadays, I doubt you'll have much trouble finishing your quest to turn the US into a socialist utopia. All you need to do is to continue being intellectually dishonest, and because the people are so genuinely stupid, if you connect the dots more simply than the other side, they'll buy your argument over the other guy's every time. Serves humanity right, I guess.
Signal when a conservative is bereft of intellectual honesty,
lacks any credibility and ideas:
They resort to the old cannard about socialism.
RebelCapitalist.com - Financial Information for the Rest of Us.
RebelCapitalist.com - Financial Information for the Rest of Us.
liberal vs. conservative is a granfalloon
Seriously. Here is the definition of Granfalloon.
What you have are corporate talking points, echoed by people like talk radio hosts, which somehow engage people's anger and outrage at what is going on...and misdirect it because unfortunately talk radio, especially cable talking heads (and yes CNN to me is one of the worst), do not get down to the real facts on what's really going on.
So, we get these rallying cries, under the guise of these labels of "you liberals" and "those conservatives" and frankly, I don't think I fit the bill personally in any of those categories.
I'm in the common sense class....if it at least works on paper, odds are I'm interested, if it doesn't, it's more corporate lobbyist horse shit.
EP is officially a non-partisan economics blog as well....
although I dare say us, in the peanut gallery, have a tendency to promote policy, legislation that would give more strength and power to working Americans....
so if that's political, so be it, working stiff politics.
But back to these labels where we have very little understanding on the topic or issue being blasted as "liberal" or "conservative"....
let's not go there. Sometimes when I'm moderating comments I miss those absurd blasts with no actual information contained within.
Sorry about that but overall, let's stay out of the fictional partisan divide....
makes me feel like a dancing puppet, the strings controlled by some corporate lobbyist to dance the way they wish.
Tax Fairness
The graphs minimizes the damage done by property taxes to the working poor.
Many working poor rent and at least a third of their rent can go to pay the landlord's property taxes. Probably more working poor rent than "own" their homes. This property tax burden is not shown in your stats.
Plus, property taxes are taxes on a basic right of life, a place to live. A home can be bought and paid for with a lifetime of work except for the ever increasing property taxes which must be payed to the state,year after year, over and over again.
Property taxes are the most regressive of all taxes for they totally ignore the income or the inability of the taxpayer to pay. Sales taxes which are also regressive have exemptions for food and prescription meds in most places, yet your home is held hostage with a yearly payment of property taxes to the state, regardless if you are sick, unemployed, or disabled.
In todays economy, many of the working poor are no longer working. When they cant pay their property taxes, greedy vultures will descend on the tax auctions and buy their life's work for pennies on the dollar.
Any true progressive who is concerned with economic justice and affordable housing should work to reform the property tax system so at least there is an income standard or a means test for homestead property taxes.
This injustice has become especially acute with the real estate bubble running up property values and taxes and those taxes not falling back with the following crash in market values. Combine that with high unemployment and you have abusive property taxes that are grinding people down.
I happen to agree with a lot of what you've
said.
Property taxes have a place, but I think that the greatest problem now is that they are used to fund K-12 education. I think that funding should be transferred to the state, and that the economies of scale that come from centralized purchasing and the like should be taken advantage of.
By removing the cost of K-12 education from property tax rolls, you could cut the amount of revenue that must be raised substantially.
The second item would be to make any and all specific tax abatements (like for Walmart, or other big box stores) subject to popular approval in the taxing district. That is if it's a county tax, make the people seeking an abatement collect signed statements agreeing to the abatement from 75% of registered voters in the district.
Third, we need to expand homestead and "shelter" credits that exempt a portion of the value of a home from taxation.
Set it at 50% of the median value of home in the metro area (or county, whichever is larger), and voila the tax burden for people living in modest homes drops like a stone.
Finally, perhaps rental property owners should be given a choice. Have the value of property taxed as usual, or have rent subject to a profit tax, and comply with voluntary standards designed to make sure that rental properties are energy efficient and sanitary. That would eliminate alot of the blowback of property taxes on renters.
Sorry not to respond to your sooner, but I was busy.
Please consider signing up for Economic Populist. It's simple, to the right hand side of the screen.
The County Tax Mafia
It is your local county Tax Mafia that is dangerous.
They can take your home for not paying them their yearly tribute.
They demand your money whether they even need it or not. Your tax bill is not based on the need of the county, but on what they determine is the taxable value of your home. If the county coffers are overflowing and you are sick, broke, and unemployed, the county still demands you pay them money you dont have, money they dont need. This is just one of the many injustices of the property tax system.
I know of several cases where people who have payed off the mortgage, yet are unemployed or partially employed, are required to pay 50 percent or more of their income to the County Tax Mafia. Of course, many cant pay. So interest and penalties are added to their tax bill.
The County Tax Mafia must get their pound of flesh. No matter how unjust it is.
They are our "public servants" dont ya know?
They have runaway spending to continue, lavish benefits to pay to themselves,. Their lavish pensions are in jeopardy with this downturn in the economy. Double dipping, retiring for a month then returning to work with full salary while being paid an additional pension check on payday, doenst go as far as it used to.
The property tax payer who is crippled by these hard times must pay his "public servants" no matter how hard his personal circumstances are, while his public servants whine about trimming back their benefits and even laying off workers.
The property tax system needs to be reformed so that there is a provision for an income based property tax in hard times.
Property taxes are the most unjust taxes of them all.
Property Tax
This is one of the most hated taxes because it is based on a hypothetical. If you bought your house in 1970 for $25,000, and you are living on Social Security and a small amount of savings, you may be doubly screwed. On your savings, you get almost zero. But the county thinks you are rich because you could now get half a mil for your barely adequate house and go live under a bridge. So we paid off our mortgage and now we are renting our house from the county. It makes sense.
Frank T.
Frank T.
Cash you pay and cash you get
First : I am very sympathetic. For instance, I worked for a while with food charities and adult literacy centers. I encourage people to turn their lawns and window-sills into food growing places. When I am teaching a course, I try to include at least one lesson where the group shares their ideas and personal techniques for saving money in a way that is good for the environment and good for personal health (a fun and interesting hour which ends up saving the group many tens of thousands of dollars when calculated over a 10 year period). And more.
Just a question. How much do the "overtaxed" poor get right back in cash benefits? In other words, if I pay $4K in taxes and get $4k (or more back in cash and tangible benefits like food stamps then I haven't actually paid a penny in taxes?)
Secondly, what are the grand totals in dollars? You use percentages. If I pay 5 million in taxes and you pay 5 thousand - we both use the road that cost $ 5,005,000 to build.
If you wish to build support for the people facing social and economic challenges then it is important to start with quality and fair information?
A suggestion (which I like in blog posts about social and economic responsibility) : include links to people who disagree with you. It shows that you are open, constructive and informed? Keep your friends close and your enemies closer?
Another suggestion : at the bottom of each post include a blurb and a link to a simple money-saver idea? Even if your readers don't agree with your opinions, they would get a direct economic benefit from reading your blog?
What if all economic bloggers used this idea? Collectively, we could help our readers save billions of dollars a year and increase our personal economic independence and freedom?
I could call it the Namke "Bloggers Building Free Readers and Economic Excellence" Campaign? The B2FREE Campaign? LAMA! (laughing at my arrogance).
BTW: Found you via the blogroll at the Econosophy blog.
Thanks for your blog post and Happy Thanksgiving to all!
all the best
Namke von Federlein
No Fairness
I think Rome will burn before you see any kind of "fairness" extracted from the coddled ruling class. Ask me if I care. During the Reagan recession, I started high school homeless and living in my divorced mothers car with my brother and sister. I struggled my whole life. Now my wife, unemployed and unable to find work, and I, both college educated and facing our forties, have little after paying off student debt. Now we get the privilege of borrowing 100,000 from a crooked bank for a meager home and paying them 3x the value of the loan in usurious interest payments.(ROFL home ownership is the path to wealth) All the while the property tax payment is almost in parity with the mortgage payment. Then, apparently, all along I was supposed to be pouring all that extra cash I've been using to eat and drive to work into a 401k for retirement. Truer words have never been spoken with this quote:
"Burn Baby Burn!!!"
Misleading and misguided
This article is presenting partial facts at best. As of 2010,
- Close to 52% of tax payers will have no federal tax liability.
- 80% of federal income tax is paid by top 20% tax payers. (of course, so is the wealth concentration)
The political class objective is to divide populace in all possible ways (rich vs. middle-class, corporate vs working class) and tax'em however they can. Did you wonder how many different taxes are there now? From taxes on your phone bill, cable bill to pay roll taxes, there are one too many.
Instead, the focus of we thoughtful citizen should be on what the political class is doing with all our rightful yearned money.
Per latest reports, Federal/state/local government combined is the biggest sector in the economy signaling a major challenge to our entire economy.
Besides defense, there is no one thing that government manages properly: social security? medicare?
At the current rate of deficits (result of both Democratic and Republican administrations), by 2015, the interest payments alone on deficit financing will be more than $700 billion a year.
Wanna share more $$$ of your hard earned money to political class?
I think you're misleading and misguided
You're ignoring the post of the post by trying to focus on income tax. This post is about state, local sales and property taxes, which are highly regressive. You are quoting income tax, straight wages instead of reading or acknowledging all taxes, which is the point of this post. It's about sales and property taxes, which are highly regressive.
unless
Yes, you have a choice..
- think of a piece meal solution or
- address the core problem
last post for you
Obviously you have some sort of "philosophy" that isn't based in statistics and economic reality. The reality of "choice" is truly bogus. One has a "choice" to buy food, to buy gas, to buy clothing? One has a "choice" to obtain shelter and for some reason those who are not millionaires should not own property?
EP is an economics blog where we do our best to look at the economic reality.
Sticking to some sort of philosophy that clearly isn't working is absurd and not common sense.
Trying to blame most of working America is when it becomes truly obvious, from state budget deficits themselves things are seriously not working is beyond the pale.
Funny how property values
Funny how property values have gone down but my property tax bill went up?
In the 23 years I've lived in my house the property tax bill went up 700%. If only my income had gone up 700%! But sadly I've participated in the 30 years of wage stagnation.
Poor or rich, we all buy what we can afford. A consumption tax would mean that the big, well heeled spender will pay taxes and the poor will pay taxes. The rich will pay a greater total. Yea, I know about the social / moral argument but since in my younger years I've also participated in poor, I was the one in control of what I bought. Would have 10% changed my mind on buying the red beans and rice....nope. Would 10% change the mind of someone that can afford a 42 foot Bertrum ...nope.
Property taxes are the most egregious of all taxes. No property tax would mean that in lean times I would not need to worry about the tax man taking my house.
Property taxes, Income Taxes, and Sales Taxes
I don't necessarily completely agree about the point of the article. The information included is accurate but the full tax picture needs to be covered in order to do a thorough analysis.
As some like Dr. Michael Hudson have noted - shrinking tax revenue from one source (e.g. percent of state revenue from property taxes in the 30s vs. today) merely causes state and local governments to seek revenue from other sources.
Whether a tax is sales, income, or property thus is irrelevant from the basis of revenue needed.
However, the effects of relying on revenue from sales, income, or property taxes are vastly different.
Sales and income taxes vary wildly depending on the economy. In good times, the revenue is high but in bad times like now -it drops precipitously. This is a tough way to plan government activities.
The progressive/regressive nature of sales taxes is also somewhat misleading - note that taxes on food are generally exempted; states like Massachusetts also exclude personal consumption items under some amount ($100?). Thus it is possible that the sales tax in this situation is not nearly as regressive as it appears.
Similarly income taxes are misleading in the progressive/regressive sense because the real differentiator comes from payroll taxes.
This is where you get the worst of all worlds: thoroughly regressive, unreliable, capped at a relatively low income for higher earners, and also evadable via business entities.
The point is that states shifting from property taxes to emphasize sales and income taxes are simply reaping what they have sown. They have traded relatively stable property tax revenue in the interests of populist politics for much more volatile sales and income taxes; the fiscal situation thus is not clearly a tax evasion by the wealthy issue - at least with regards to sales and income taxes.
For that matter, the wealthy are far more likely to benefit from Proposition 13 type property tax legislation as opposed to Texas style annual property value assessments.
This leads to the last item of note: property taxes.
It is a mistake to view property taxes in purely a present tense perspective. If you look at the 50 states, the one thing most correlative is that higher property tax rates correlate with lower average/median house prices.
Thus while certain demographics *might* be affected by high property taxes, in reality it appears having low property taxes allows house prices to increase. The increased house prices then exert an even higher financial burden on all those who don't already own free and clear which is the majority of the population.
Dr. Michael Hudson ascribes this to banks seeking to divert cash flow tied up in property taxes to instead pay ever increasing mortgages.
Combine this dynamic with artificial limits on tax increases like California's Proposition 13 and you end up with entire states where housing costs are astronomical.
The point of all this is to think about the state/local government revenue picture as well as what specific tax systems encourage or discourage in the economy.