Tax the poor! States raise sales, cigarette taxes
Posted July 23, 2015 in Selected Press
Forget the millionaire's tax. These days, states are looking to balance their budgets by raising taxes that hit the poor hardest.
There's been a notable shift in recent years -- especially among Republican governors -- to raise sales and other consumption taxes, which more heavily hit those at the bottom of the income spectrum. This comes as lawmakers cut personal income taxes, which usually benefit wealthier residents more.
"States are shifting the burden down to lower and, possibly, middle income families," said Kim Rueben, director of the state and local finance initiative at the Urban Institute.
Some states are eliminating sales tax exemptions on items such as clothing, while others are taxing additional products and services. And some are simply raising the rate.
Some states are also raising other consumption taxes on items such as cigarettes and soda. While these "sin taxes" are also meant to discourage people from purchasing these products, they often affect the poorest residents the most. This is in part because lower-income Americans tend to consume more of these products and in part because the tax increase claims a larger share of their income.
Look at Kansas, which faced major budget gaps after cutting income taxes in 2012. The Sunflower State raised its sales tax to 6.5%, from 6.15%, on July 1. It also hiked its cigarette tax by 50 cents to $1.29 a pack.
Governor Sam Brownback, who has faced backlash over his fiscal management, said he's doing what his residents want.
"Most Kansans prefer consumption taxes over income taxes and want no increase of burden on property taxes," Brownback said when he unveiled his tax policy in May.
Faced with a $1 billion budget gap, Connecticut this year adopted an array of tax changes, including increasing the top income tax rate to 6.9% and adding a 6.99% rate for couples earning more than $1 million.
But it also eliminated the sales tax exemption on clothing purchases of up to $50. That move, coupled with a cut to a property tax credit and other measures, leave residents earning less than $25,000 contending with the largest tax hike, according to an analysis by the Institute on Taxation and Economic Policy, a left-leaning group.
In Ohio, lawmakers cut personal income rates by 10% across the board as part of a 2013 tax reform package. To help pay for it, residents have to pay 5.75% in sales taxes, up from 5.5%.
The result: Ohioans in the Top 1% saw a tax cut of $6,083 a year, while those in the bottom fifth, with income below $18,000, got hit with an increase of $12, on average, according to an analysis commissioned by Policy Matters Ohio, a left-leaning group, of the tax reform proposal.
Governors haven't always gotten their way when it comes to raising sales taxes. Lawmakers have rejected some proposals. But it's a popular option because it's seen as adding only a few cents to a purchase, as opposed to taking a bigger chunk out of a paycheck.
Still, consumption taxes take a bigger bite out of poor residents' income.
"What may seem like a choice ends up as a very heavy load on low and middle income families over the course of a year," said Matt Gardner, the institute's executive director.
Original Article: http://money.cnn.com/2015/07/23/news/economy/sales...