Thursday, January 15, 2015

The poor hit harder by local taxes; bottom 40 percent left out in Asa tax cut

Posted By on Thu, Jan 15, 2015 at 6:50 AM

  • New York Time

Food for tax policy thought in the New York Times on a study that shows that the less you earn the more your income goes to local taxes.

Arkansas knows the feeling well. We rely heavily on a regressive sales tax. And a failure to adequately index the once-progressive income tax over the years has increased that burden on the working poor. Gov. Asa Hutchinson aims to do something about that for middle income workers, but omits the poorest workers, those making less than roughly $21,000, from any benefits of his big income tax cut legislation. A round of tax cutting in 2013 gave a tiny income tax break to the poor but gave most of the benefits to the ultra wealthy in a capital gains tax cut and tax cuts for manufacturers. That 2013 law also gave the same .1 percent tax cut to billionaires that it gave to someone making under $21,000.

The Times reports:

According to the study, in 2015 the poorest fifth of Americans will pay on average 10.9 percent of their income in state and local taxes, the middle fifth will pay 9.4 percent and the top 1 percent will average 5.4 percent.

“Virtually every state’s tax system is fundamentally unfair,” the report concludes. “Unfair tax systems not only exacerbate widening income inequality in the short term, but they also will leave states struggling to raise enough revenue to meet their basic needs in the long term.”

You can go to the Institute on Taxation and Economic Policy for Arkansas-specific information. Arkansas does not make the "terrible ten" most regressive states, where the bottom 20 percent pay almost seven times the percentage of their incomes in taxes as the wealthy. But it doesn't perform very well. See graphic below. Note that the people excluded from any benefits of Gov. Hutchinson's income tax plan — those making less than $21,000 — account for roughly 40 percent of Arkansas taxpayers. His plan offers no benefits for those making more than $80,000 either, however. Roughly half of taxpayers will get some savings.

click to enlarge screen_shot_2015-01-15_at_6.37.42_am.png

Further breakdowns of the impact of various taxes shows the income tax in Arkansas remains progressive in application. Everything else, not so much.

click to enlarge screen_shot_2015-01-15_at_6.43.50_am.png

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