The Impact of State Income Taxes on Low-Income Families in 2010

PDF of this report (19pp.)

By  Phil Oliff and Nicholas Johnson *

November 15, 2011

View the most recent version of this report:
The Impact of State Income Taxes on Low-Income Families in 2011
Revised April 17, 2012

Related Areas of Research

Summary

The successful bipartisan effort over the last two decades to reduce state income taxes on working-poor families has stalled and is in danger of reversing.  No new states exempted working-poor families from income taxes in 2010, and in most of the 15 states where such families still pay income taxes, they saw their income taxes increase.

Taxing the incomes of working-poor families runs counter to decades of efforts by policymakers across the political spectrum to help families work their way out of poverty.  The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well.  Since 1990, the number of states with income taxes on working-poor families of four has fallen from 24 to 15, and even in the remaining 15 states, the income tax liabilities of these families have declined significantly. 

Eliminating state income taxes on working-poor families helps offset the higher child care and transportation costs that families incur as they strive to become economically self-sufficient.  Moreover, research increasingly makes clear that raising the after-tax incomes of poor families can boost poor children's chances of academic success and increase their earnings prospects as adults.  In other words, relieving poor families of state income taxes can make a meaningful contribution toward "making work pay," and can help states cultivate the highly skilled workforce they will need to succeed economically in the future.

Despite the benefits of reducing taxes for poor families, some states required them to pay income tax bills of several hundred dollars in 2010.  A two-parent family of four with annual income at the poverty line (which is $22,314 for a family of that size) owed $498 in Alabama, $292 in Hawaii, $238 in Georgia, and $234 in Oregon.  Such amounts can make a big difference to a family struggling to escape poverty.  Other states levying tax of more than $150 on families with poverty-level incomes were Illinois, Iowa, Montana and Ohio. 

Methodology

This analysis assesses the impact of each state's income tax in 2010 on two types of poor and near-poor families with children:  a married couple with two dependent children and a single parent with two dependent children.a  It focuses on two measures:  the lowest income level at which state residents are required to pay income tax, and the amount of tax due at various income levels.  We have generated the relevant data annually since the early 1990s, allowing for analysis of trends over the last two decades.b 

A benchmark used throughout this analysis is the federal poverty line, or the annual estimate of the minimum financial resources required for a family to meet basic needs.  The Census Bureau's poverty line for 2010 was $17,374 for a family of three and $22,314 for a family of four.c   Many experts acknowledge that supporting a family requires an income level substantially higher than the federal poverty line, so this analysis may understate the extent to which state income taxes can make it more difficult for poor families to move up the economic ladder.

a The married couple is assumed to file a joint return on its federal and state tax forms, and the single parent is assumed to file as a Head of Household.   A few states' tax codes treat married couples with two workers differently than married couples with one worker, so each family is assumed to include one worker.  For the few states whose tax codes take the age of children into account, the children are assumed to be ages 4 and 11.

b This report takes into account income tax provisions that are broadly available to low-income families and that are not intended to offset some other tax.  It does not take into account tax credits or deductions that benefit only families with certain expenses; nor does it take into account provisions that are intended explicitly to offset taxes other than the income tax.  For instance, it does not include the impact of tax provisions that are available only to families with out-of-pocket child care expenses or specific housing costs, because not all families face such costs.  It also does not take into account sales tax credits, property tax "circuit breakers," and similar provisions, because this analysis does not attempt to gauge the impact of those taxes — only of income taxes.

c Specifically, this report uses the Census Bureau's weighted average poverty thresholds, available at http://www.census.gov/hhes/www/poverty/data/threshld/.

Some states levied income tax on working families in severe poverty.  Five states — Alabama, Georgia, Illinois, Montana, andOhio — taxed the income of two-parent families of four earning less than three-quarters of the poverty line, or $16,736.  And three states — Alabama, Georgia, and Montana — taxed the income of one-parent families of three earning less than three-quarters of the poverty line, or $13,031.

Also, 23 states required families with income just above the poverty line to pay income tax in 2010, despite strong evidence that a poverty-level income is often insufficient to meet families' basic needs.

In contrast, 19 of the 42 states with income taxes exempted the poor and the near-poor from the tax, and a substantial number offered significant refunds to low-income working families, primarily through Earned Income Tax Credits (EITCs).[1] 

These findings show that that there is still significant room for improvement in many states' tax treatment of low-income families.  To some degree, the slowing of progress in reducing these families' tax liabilities over the last several years has been inevitable, as states have faced the most difficult fiscal conditions in decades.  But a few states have moved significantly backward in this area, raising taxes on low-income working families in order to finance tax cuts that benefit corporations and wealthy individuals.  Michigan, New Jersey, and Wisconsin, for example, have scaled back their EITCs over the last two years while cutting business taxes, taxes on the wealthiest families, or both. 

It is possible for states to go in the opposite direction — raising revenues overall while improving their tax treatment of the poor.  Connecticut, which in 2011 enacted a new EITC while balancing its budget with a combination of spending cuts and new revenues, is the sole example from this year.

In short, states need not dismantle policies designed to reduce poverty and encourage work.  Rather, they should preserve these policies and build upon them when their fiscal situation improves. 

Many States Continue to Levy Substantial Income Taxes on Poor Families

The Tax Threshold

One important measure of the impact of taxes on poor families is the income tax threshold — the point below which a family owes no income tax.

  • In 11 states, the threshold for a single-parent family of three is below the $17,374 poverty line for such a family (see Table 1A). 
  • In 15 states, the threshold for a two-parent family of four is below the $22,314 poverty line for such a family (see Table 1B and Figure 1).
  • Five states tax families of three or four in severe poverty, meaning those earning less than three-quarters of the poverty line ($13,031 for a family of three and $16,736 for a family of four):  Alabama, Georgia, Illinois, Montana, and Ohio.
  • In nine states, a family of three where the employed person works full-time at the minimum wage owed income tax in 2010:   Alabama, Georgia, Hawaii, Illinois, Mississippi, Missouri, Montana, Ohio, and Oregon.  (Such a person would have an income of $15,080 under the federal minimum wage, but some states have minimum wages above the federal level; see Table 3A.)
  • New York had the nation's highest income tax thresholds for 2010:  $34,600 for a family of three and $40,300 for a family of four.  Those levels are well above the poverty lines for families of those sizes.

Taxes and Tax Credits for Poor Families

Several states charge those living in poverty several hundred dollars a year in income taxes — a substantial amount for a struggling family.

  • In eight states, a family of four at the poverty line owes more than $150 in income taxes: Alabama, Georgia, Hawaii, Illinois, Iowa, Montana, Ohio, and Oregon (see Table 2B).
  • At the other end of the spectrum, 17 states not only avoid taxing poor families but also offer tax credits that provide refunds to families of three or four at the poverty line (see Tables 2A and 2B).  These credits act as a wage supplement and income support, encouraging work and reducing poverty.  The largest refund for families at the poverty line is $1,917 for a family of three in New York.

Taxes on Near-Poor Families

Studies have consistently found that the basic cost of living — food, clothing, housing, transportation, and health care — exceeds the federal poverty line in most parts of the country, sometimes substantially.[2]  So, many families with earnings above the official federal poverty line still have considerable difficulty making ends meet. 

In recognition of the challenges faced by families with incomes somewhat above the poverty line, the federal and state governments have set eligibility ceilings for some programs, such as energy assistance, school lunch subsidies, and in many states health care subsidies, at or above 125 percent of the poverty line ($21,718 for a family of three, $27,893 for a family of four in 2010).

A majority of states, however, continue to levy income tax on families with incomes at 125 percent of the poverty line.

  • Twenty-three states tax two-parent families of four earning 125 percent of the poverty level, and the bill exceeds $500 in eight states:   Alabama, Arkansas, Georgia, Hawaii, Iowa, Kentucky, Oregon, and West Virginia (see Figure 4B).
  • Twenty-two states tax families of three with income at 125 percent of the poverty line (see Figure 4A).

How Can States Reduce Income Taxes on Poor Families?

States employ a variety of mechanisms to reduce income taxes on poor families.  Nearly all states offer personal exemptions and/or standard deductions, which reduce the amount of income subject to taxation for all families, including those with low incomes.  In a number of states, these provisions by themselves are sufficient to lift the income tax threshold above the poverty line.  In addition, many states have enacted provisions targeted to low- and moderate-income families.  To date, 25 states have established an EITC based on the federal EITC to reduce the tax obligation of working-poor families, mostly those with children.[3] 

Some states offer other types of low-income tax credits, such as New Mexico's Low-Income Comprehensive Tax Rebate, a refundable tax credit for households with income of $22,000 or less.  Finally, a few states have a "no-tax floor," which sets a dollar level below which families owe no tax but does not affect tax liability for families above that level. 

Most States Have Made Substantial Progress Since the Early 1990s, but Others Lag Behind

Since the 1990s, most states' income-tax treatment of the poor has improved greatly.  From 1991 to 2010, the number of states taxing poor, two-parent families of four decreased to 15 from 24.  Over that same span, the average state tax threshold increased to 118 percent of the poverty line from 84 percent.  And many of the 15 states that still tax poor families of four have reduced the taxes levied on those families.  From 1994 to 2010, the average tax levied fell by 48 percent, after adjusting for inflation.  Tables 5, 6, and 7 show these changes over time.

On the other hand, a few states tax the incomes of the poor more heavily than in the early 1990s.

  • In Arizona, California, Connecticut, Mississippi, and Ohio, the income tax threshold has fallen compared to the poverty line since 1991 (see Table 7).  In Connecticut, the threshold has fallen to 108 percent of the poverty line from 173 percent.
  • In four states — Georgia, Iowa, Mississippi, and Ohio — the income tax on families of four with poverty-level incomes has risen since 1994 even faster than inflation (see Table 6).  The inflation-adjusted increase was 39 percent in Georgia and 9 percent in Ohio.  In Mississippi and Iowa, such families' tax liability increased from zero to $122 and $214, respectively; Iowa's increase was the largest in dollar terms in any state.  In each of these states, the reason for the tax increase is that personal exemptions, credits, or other features designed to protect low-income families from taxation have eroded due to inflation.

Why Does This Report Focus on the Income Tax, Which Costs Poor Families Less Than Other State Taxes?

In most states, poor families pay more in consumption taxes, such as sales and gasoline taxes, than income taxes.  They also pay substantial amounts of property taxes and other taxes and fees.  Why, then, does this report focus on the impact of state income taxes?

First, the income tax is a major component of most state tax systems, making up 36 percent of total state tax revenue nationally.  The design of a state's income tax thus has a major effect on the overall fairness of the state's tax system.

Second, the income tax plays a huge role in determining the overall impact of a state's tax system on poor families.  It is administratively simple for a state to eliminate income tax for people below a given income level using the income information that people provide when the tax is levied, i.e., on their tax returns.  (As this report shows, a number of states have taken advantage of this opportunity.)  Sales tax, on the other hand, is collected by merchants who have no knowledge of consumers' income levels, and landlords generally pass the cost of property taxes on to renters in the form of higher rents.  As a result, the most significant low-income tax relief at the state level in the past decade has come by means of the income tax.

Third, families trying to work their way out of poverty often face an effective tax on every additional dollar earned in the form of lost benefits such as income support, food stamps, Medicaid, or housing assistance.  Income taxes on poor families can exacerbate this problem and send a negative message about the extent to which increased earnings will improve family well-being.

Low-income families are better off if a state has an income tax than if it doesn't, even if their state's income tax needs significant improvement.  The reason is that most states' income taxes, even those that tax the poor, are progressive; that is, income tax payments represent a smaller share of income for low-income families than for high-income families.  The other primary source of state tax revenue, the sales tax, is regressive, consuming a larger share of the income of low-income families than of high-income families.

States that rely heavily on non-income taxes tend to have higher overall taxes on the poor than do other states.  Most of the states without income taxes rely heavily on the sales tax instead, which renders their tax systems very burdensome for low-income families.  Similarly, two states with income taxes but no general sales tax — Montana and Oregon — have less regressive tax systems overall than the average state because they do not levy general sales taxes, even though they impose above-average income tax burdens on the poor.

States' recent fiscal troubles are significantly slowing their progress in reducing the tax liabilities of poor families.  In the 2010 tax year only one state, Oklahoma, implemented a tax change that significantly reduced the tax liabilities of low-income families, as it continued phasing in an increase in the standard deduction.  Also, Connecticut has created a new EITC, set at 25 percent of the federal credit, that will take effect in the 2011 tax year.

In addition, fiscal problems and competing priorities have prompted some states recently to enact measures that increase income taxes for poor and near-poor families.  For example:

  • Michigan is reducing its EITC to 6 percent of the federal credit (from 20 percent), beginning with the 2012 tax year.  Had this change been in place in 2010, Michigan's threshold for two-parent families of four would have fallen from 36 percent above the poverty line to slightly below the poverty line.  Families of four with poverty-level income would have seen their taxes increase by $680.
  • New Jersey reduced its EITC to 20 percent of the federal credit (from 25 percent), beginning in 2010.  This cut lowered New Jersey's threshold for two-parent families of four by $1,600 and raised taxes for such families at the poverty line by $243.    
  • Wisconsin is reducing its EITC to 11 percent of the federal credit (from 14 percent) for families with two or more children, beginning in 2011.  Had this change been in place in 2010, it would have driven Wisconsin's threshold for two-parent families of four below 125 percent of the poverty line; families of four at the poverty line would have faced a $146 tax increase.       

All three of these states not only have faced large budget gaps but also have cut taxes for corporations and/or wealthy individuals even as they are raising taxes on the working poor.  Michigan replaced its major business tax with a different type of business tax, giving companies a net tax break worth more than $1 billion in 2012.  New Jersey reduced the income tax rate for taxpayers with incomes above $400,000 by allowing a temporary rate increase to expire.  Wisconsin enacted $90 million in tax cuts for corporations and high-income households.  EITC cuts helped each of those states offset the revenue loss from those tax cuts.

Raising taxes on the working poor not only increases poverty, but also is more harmful to states' economies than other budget-balancing measures.  This is, in part, because lower-income people spend nearly all of the money they make, mainly on necessities, so for every dollar they lose due to a tax increase, the total amount of spending in the economy drops by around a dollar.  High-income people are likely to save a larger part of any extra income they receive, so for every dollar they lose due to a tax increase, total spending drops by less than a dollar, say, 90 cents.  Thus, tax increases that mostly affect higher-income families and corporations have less of an impact on overall demand and are preferable for economic and job growth.[4]

Raising taxes on the working poor can also have longer-term consequences.  Recent research suggests that poverty can impair children's chances of success later in life, making them less productive contributors to their states' future economies.[5]  More specifically:

  • A number of studies focused on welfare-to-work and anti-poverty programs have found that additional family income can boost the test scores of children from low-income families.[6]
  • A recent study by leading researchers finds a strong relationship between family earnings in early childhood and earnings later in life for children growing up in low-income families.  The study finds that, for a child growing up in a family with income below $25,000, a $3,000 annual increase in family income when the child is under 5 years old is associated with a 19 percent increase in adult earnings and 135 additional annual work hours after age 25.[7]

These findings have crucial policy implications.  They suggest that policies such as the EITC, which boost the incomes of poor families, can increase their children's chances of success in the classroom and ultimately in the workforce.  Conversely, reducing the incomes of poor families, such as the EITC cuts in Michigan, New Jersey, and Wisconsin, can diminish poor children's prospects for academic and professional success.  This suggests that any budgetary savings states achieve from cutting low-income credits carry with them significant economic costs, by making it more difficult to cultivate the highly skilled workforce that states will need to succeed economically.

Conclusion

A number of states continue to tax the income of poor families — in some cases, very poor families.   While states have made significant progress in this area over time, that progress ground to a halt in 2010, as fiscal problems constrained states' ability to advance targeted tax reductions.  Moreover, some states have raised taxes on the working poor while cutting taxes for corporations and wealthy residents.   Instead of undermining efforts to reduce the tax liabilities of poor families, states should preserve the progress they have made and build upon it when their budget outlook improves.   

Table 1A:
2010 State Income Tax Thresholds, Single-Parent Family of Three
Rank State Threshold
1 Alabama $9,800
2 Montana 10,000
3 Georgia 12,700
4 Hawaii 13,800
5 Illinois 14,400
5 Mississippi 14,400
5 Missouri 14,400
8 Ohio 14,800
9 Arkansas 15,400
10 Oregon 16,800
10 Louisiana 16,800
Poverty Line $17,374
12 Indiana 18,300
12 Kentucky 18,300
12 West Virginia 18,300
15 Iowa 18,900
16 North Carolina 19,000
17 Connecticut 19,100
18 Colorado 19,400
18 Idaho 19,400
18 North Dakota 19,400
21 Utah 19,700
22 Arizona 20,100
23 Virginia 23,000
23 Wisconsin 23,000
25 Maine 23,900
26 Oklahoma 24,000
27 Pennsylvania 25,500
28 South Carolina 25,800
29 Michigan 26,000
30 Massachusetts 26,400
31 Delaware 26,600
32 California 26,900
33 Nebraska 27,300
34 Kansas 27,500
35 District of Columbia 29,400
36 New Jersey 30,900
37 Rhode Island 31,600
38 Maryland 32,400
39 Minnesota 33,100
40 Vermont 33,200
41 New Mexico 33,800
42 New York 34,600
Average Threshold 2010 $22,098
Amount Above Poverty Line $4,724
Note:  A threshold is the lowest income level at which a family has state income tax liability.  In this table thresholds are rounded to the nearest $100.  The threshold calculations include earned income tax credits, other general tax credits, exemptions, and standard deductions.  Credits that are intended to offset the effects of taxes other than the income tax or that are not available to all low-income families are not taken into account.  Source:  Center on Budget and Policy Priorities               
Table 1B:
2010 State Income Tax Thresholds, Two-Parent Family of Four
Rank State Threshold
1 Montana $12,200
2 Alabama 12,600
3 Georgia 15,900
4 Ohio 16,200
5 Illinois 16,400
6 Hawaii 17,800
7 Missouri 18,100
8 Iowa 19,300
9 Mississippi 19,600
10 Oregon 19,900
11 Indiana 20,300
12 Louisiana 21,000
13 Arkansas 21,700
14 Kentucky 22,100
14 West Virginia 22,100
  Poverty Line $22,314
16 North Carolina 23,200
17 Arizona 23,600
18 Connecticut 24,100
19 North Dakota 26,000
20 Colorado 26,100
20 Idaho 26,100
22 Utah 26,500
23 Virginia 27,400
24 Oklahoma 28,200
24 Maine 28,200
26 Wisconsin 28,500
27 Massachusetts 29,500
28 Michigan 30,300
29 Kansas 30,800
30 California 31,000
31 Delaware 31,800
32 Pennsylvania 32,000
33 District of Columbia 32,400
33 South Carolina 32,400
35 Nebraska 33,200
36 New Jersey 34,700
37 Rhode Island 36,500
38 Maryland 36,800
39 Minnesota 37,500
40 Vermont 38,700
41 New Mexico 39,500
42 New York 40,300
Average Threshold 2010 $26,440
Amount Above Poverty Line $4,126
Note:  A threshold is the lowest income level at which a family has state income tax liability.  In this table thresholds are rounded to the nearest $100.  The threshold calculations include earned income tax credits, other general tax credits, exemptions, and standard deductions.  Credits that are intended to offset the effects of taxes other than the income tax or that are not available to all low-income families are not taken into account.  Source:  Center on Budget and Policy Priorities                
Table 2A:
2010 State Income Tax at Poverty Line, Single-Parent Family of Three
Rank State Income Tax
1 Alabama $17,374 343
2 Hawaii 17,374 228
3 Arkansas 17,374 206
4 Montana 17,374 157
5 Georgia 17,374 149
6 Illinois 17,374 99
7 Ohio 17,374 96
8 Mississippi 17,374 89
9 Missouri 17,374 62
10 Oregon 17,374 54
11 Louisiana 17,374 31
12 Arizona 17,374 0
12 California 17,374 0
12 Colorado 17,374 0
12 Connecticut 17,374 0
12 Delaware 17,374 0
12 Idaho 17,374 0
12 Kentucky 17,374 0
12 Maine 17,374 0
12 North Dakota 17,374 0
12 Pennsylvania 17,374 0
12 South Carolina 17,374 0
12 Utah 17,374 0
12 Virginia 17,374 0
12 West Virginia 17,374 0
26 Indiana 17,374 (49)
27 North Carolina 17,374 (114)
28 Iowa 17,374 (151)
29 Rhode Island 17,374 (182)
30 Oklahoma 17,374 (242)
31 Nebraska 17,374 (484)
32 Wisconsin 17,374 (487)
33 New Mexico 17,374 (544)
34 Massachusetts 17,374 (725)
35 Michigan 17,374 (734)
36 Kansas 17,374 (735)
37 New Jersey 17,374 (968)
38 Maryland 17,374 (1036)
39 Minnesota 17,374 (1260)
40 Vermont 17,374 (1549)
41 District of Columbia 17,374 (1669)
42 New York 17,374 (1917)
Source: Center on Budget and Policy Priorities
Table 2B:
2010 State Income Tax at Poverty Line, Two-Parent Family of Four
Rank State Income Tax
1 Alabama $22,314 498
2 Hawaii 22,314 292
3 Georgia 22,314 238
4 Oregon 22,314 234
5 Montana 22,314 232
6 Iowa 22,314 214
7 Illinois 22,314 187
8 Ohio 22,314 171
9 Missouri 22,314 102
10 Arkansas 22,314 96
11 Kentucky 22,314 90
12 Indiana 22,314 84
13 Mississippi 22,314 81
14 West Virginia 22,314 47
15 Louisiana 22,314 33
16 Arizona 22,314 0
16 California 22,314 0
16 Colorado 22,314 0
16 Connecticut 22,314 0
16 Delaware 22,314 0
16 Idaho 22,314 0
16 Maine 22,314 0
16 North Dakota 22,314 0
16 Pennsylvania 22,314 0
16 South Carolina 22,314 0
16 Utah 22,314 0
16 Virginia 22,314 0
28 North Carolina 22,314 (63)
29 Rhode Island 22,314 (182)
30 Oklahoma 22,314 (243)
31 Nebraska 22,314 (485)
31 New Mexico 22,314 (485)
33 Wisconsin 22,314 (521)
34 Massachusetts 22,314 (589)
35 Kansas 22,314 (618)
36 Michigan 22,314 (679)
37 New Jersey 22,314 (728)
38 Maryland 22,314 (973)
39 District of Columbia 22,314 (1445)
40 Vermont 22,314 (1553)
41 Minnesota 22,314 (1762)
42 New York 22,314 (1903)
Source: Center on Budget and Policy Priorities
Table 3A:
2010 State Income Tax at Minimum Wage,  Single-Parent Family of Three
Rank State Income* Tax
1 Alabama $15,080 228
2 Hawaii 15,080 101
3 Montana 15,080 83
4 Illinois** 16,900 80
5 Georgia 15,080 67
6 Oregon** 17,472 62
7 Ohio** 15,184 42
8 Mississippi 15,080 20
9 Missouri 15,080 11
10 Arizona 15,080 0
10 Arkansas 15,080 0
10 California** 16,640 0
10 Colorado 15,080 0
10 Connecticut** 17,160 0
10 Delaware 15,080 0
10 Idaho 15,080 0
10 Kentucky 15,080 0
10 Maine** 15,600 0
10 North Dakota 15,080 0
10 Pennsylvania 15,080 0
10 South Carolina 15,080 0
10 Utah 15,080 0
10 Virginia 15,080 0
10 West Virginia 15,080 0
25 Louisiana 15,080 (66)
26 Indiana 15,080 (145)
27 Rhode Island** 15,392 (189)
28 North Carolina 15,080 (252)
28 Oklahoma 15,080 (252)
30 Iowa 15,080 (353)
31 Nebraska 15,080 (504)
32 New Mexico** 15,600 (574)
33 Wisconsin 15,080 (643)
34 Massachusetts** 16,640 (750)
35 Kansas 15,080 (851)
36 Michigan** 15,392 (860)
37 New Jersey 15,080 (1007)
38 Maryland 15,080 (1190)
39 Minnesota 15,080 (1260)
40 Vermont** 16,765 (1590)
41 District of Columbia** 17,160 (1694)
42 New York 15,080 (2006)
* Income reflects full-time, year-round minimum wage earnings for one worker (52 weeks, 40 hours/week). ** These states had a minimum wage higher than the federal minimum wage in all or part of 2010. Source: Center on Budget and Policy Priorities

Table 3B:
2010 State Income Tax at Minimum Wage,  Two-Parent Family of Four
Rank State Income* Tax
1 Alabama $15,080 82
2 Montana 15,080 34
3 Illinois** 16,900 15
4 Arizona 15,080 0
4 Arkansas 15,080 0
4 California** 16,640 0
4 Colorado 15,080 0
4 Connecticut** 17,160 0
4 Delaware 15,080 0
4 Idaho 15,080 0
4 Kentucky 15,080 0
4 Maine** 15,600 0
4 Mississippi 15,080 0
4 Missouri 15,080 0
4 North Dakota 15,080 0
4 Ohio** 15,184 0
4 Pennsylvania 15,080 0
4 South Carolina 15,080 0
4 Utah 15,080 0
4 Virginia 15,080 0
4 West Virginia 15,080 0
4 Georgia 15,080 0
23 Hawaii 15,080 (85)
24 Louisiana 15,080 (176)
25 Indiana 15,080 (179)
26 Oregon** 17,472 (183)
27 Rhode Island** 15,392 (189)
28 North Carolina 15,080 (252)
28 Oklahoma 15,080 (252)
30 Iowa 15,080 (353)
31 Nebraska 15,080 (504)
32 New Mexico** 15,600 (589)
33 Wisconsin 15,080 (705)
34 Massachusetts** 16,640 (755)
35 Kansas 15,080 (903)
36 Michigan** 15,392 (1007)
36 New Jersey 15,080 (1007)
38 Maryland 15,080 (1259)
39 Minnesota 15,080 (1260)
40 Vermont** 16,765 (1612)
41 District of Columbia** 17,160 (1755)
42 New York 15,080 (2109)
* Income reflects full-time, year-round minimum wage earnings for one worker (52 weeks, 40 hours/week). ** These states had a minimum wage higher than the federal minimum wage in all or part of 2010. Source: Center on Budget and Policy Priorities
Table 4A:
2010 State Income Tax at 125% of Poverty Line, Single-Parent Family of Three
Rank State Income Tax
1 Alabama $21,718 633
2 Arkansas 21,718 545
3 West Virginia 21,718 530
4 Hawaii 21,718 509
5 Oregon 21,718 475
6 Kentucky 21,718 445
7 Georgia 21,718 385
8 Montana 21,718 314
9 Illinois 21,718 275
10 Mississippi 21,718 243
11 Iowa 21,718 242
12 Louisiana 21,718 233
12 Missouri 21,718 233
14 Ohio 21,718 216
15 North Carolina 21,718 193
16 Indiana 21,718 181
17 Utah 21,718 127
18 Colorado 21,718 109
19 Arizona 21,718 93
20 North Dakota 21,718 43
21 Idaho 21,718 38
22 Connecticut 21,718 20
23 California 21,718 0
23 Delaware 21,718 0
23 Maine 21,718 0
23 Pennsylvania 21,718 0
23 South Carolina 21,718 0
23 Virginia 21,718 0
29 Wisconsin 21,718 (115)
30 Oklahoma 21,718 (116)
31 Rhode Island 21,718 (134)
32 Nebraska 21,718 (316)
33 Michigan 21,718 (362)
34 Massachusetts 21,718 (373)
35 New Mexico 21,718 (418)
36 Kansas 21,718 (419)
37 New Jersey 21,718 (537)
38 Maryland 21,718 (612)
39 District of Columbia 21,718 (1109)
40 Vermont 21,718 (1173)
41 New York 21,718 (1469)
42 Minnesota 21,718 (1632)
Source: Center on Budget and Policy Priorities
Table 4B:
2010 State Income Tax at 125% of Poverty Line, Two-Parent Family of Four
Rank State Income Tax
1 Alabama $27,893 873
2 Kentucky 27,893 857
3 Oregon 27,893 799
4 Arkansas 27,893 779
5 West Virginia 27,893 694
6 Iowa 27,893 642
7 Hawaii 27,893 602
8 Georgia 27,893 547
9 Montana 27,893 472
10 Illinois 27,893 413
11 Indiana 27,893 379
12 Missouri 27,893 369
13 Ohio 27,893 353
14 North Carolina 27,893 328
15 Mississippi 27,893 282
16 Louisiana 27,893 241
17 Arizona 27,893 197
18 Utah 27,893 91
19 Colorado 27,893 86
20 Virginia 27,893 50
21 North Dakota 27,893 35
22 Idaho 27,893 30
23 Connecticut 27,893 29
24 California 27,893 0
24 Delaware 27,893 0
24 Maine 27,893 0
24 Pennsylvania 27,893 0
24 South Carolina 27,893 0
29 Oklahoma 27,893 (15)
30 Wisconsin 27,893 (49)
31 Rhode Island 27,893 (117)
32 Massachusetts 27,893 (135)
33 Michigan 27,893 (202)
34 Kansas 27,893 (212)
35 Nebraska 27,893 (300)
36 New Mexico 27,893 (369)
37 New Jersey 27,893 (407)
38 Maryland 27,893 (448)
39 District of Columbia 27,893 (644)
40 Vermont 27,893 (1114)
41 New York 27,893 (1331)
42 Minnesota 27,893 (1504)
Source: Center on Budget and Policy Priorities
Table 5:
Tax Threshold for a Family of Four, 1991-2010
State           Change Change
1991 2000 2008 2009 2010 1991-2010 2009-2010
Alabama $4,600 $4,600 $12,600 $12,600 $12,600 $8,000 $0
Arizona 15,000 23,600 $23,600 $23,600 $23,600 $8,600 $0
Arkansas 10,700 15,600 $21,300 $21,400 $21,700 $11,000 $300
California 20,900 36,800 $48,300 $31,000 $31,000 $10,100 $0
Colorado 14,300 27,900 $24,900 $26,000 $26,100 $11,800 $100
Connecticut 24,100 24,100 $24,100 $24,100 $24,100 $0 $0
Delaware 8,600 20,300 $30,100 $31,700 $31,800 $23,200 $100
District of Columbia 14,300 18,600 $30,200 $32,300 $32,400 $18,100 $100
Georgia 9,000 15,300 $15,900 $15,900 $15,900 $6,900 $0
Hawaii 6,300 11,000 $17,800 $17,800 $17,800 $11,500 $0
Idaho 14,300 20,100 $25,000 $26,100 $26,100 $11,800 $0
Illinois 4,000 14,000 $16,000 $16,400 $16,400 $12,400 $0
Indiana 4,000 9,500 $15,500 $20,300 $20,300 $16,300 $0
Iowa 9,000 17,400 $19,000 $19,200 $19,300 $10,300 $100
Kansas 13,000 21,100 $28,500 $30,400 $30,800 $17,800 $400
Kentucky 5,000 5,400 $21,200 $22,100 $22,100 $17,100 $0
Louisiana 11,000 13,000 $20,300 $21,000 $21,000 $10,000 $0
Maine 14,100 23,100 $27,800 $28,200 $28,200 $14,100 $0
Maryland 15,800 25,200 $34,300 $36,800 $36,800 $21,000 $0
Massachusetts 12,000 20,600 $28,100 $29,500 $29,500 $17,500 $0
Michigan 8,400 12,800 $23,800 $30,300 $30,300 $21,900 $0
Minnesota 15,500 26,800 $35,900 $37,400 $37,500 $22,000 $100
Mississippi 15,900 19,600 $19,600 $19,600 $19,600 $3,700 $0
Missouri 8,900 14,100 $17,600 $18,100 $18,100 $9,200 $0
Montana 6,600 9,500 $12,200 $12,000 $12,200 $5,600 $200
Nebraska 14,300 18,900 $31,200 $33,200 $33,200 $18,900 $0
New Jersey 5,000 20,000 $32,900 $36,300 $34,700 $29,700 -$1,600
New Mexico 14,300 21,000 $37,400 $39,500 $39,500 $25,200 $0
New York 14,000 23,800 $38,300 $40,300 $40,300 $26,300 $0
North Carolina 13,000 17,000 $21,800 $23,200 $23,200 $10,200 $0
North Dakota 14,700 19,000 $25,400 $26,300 $26,000 $11,300 -$300
Ohio 10,500 12,700 $16,000 $16,200 $16,200 $5,700 $0
Oklahoma 10,000 13,000 $23,500 $25,800 $28,200 $18,200 $2,400
Oregon 10,100 14,800 $18,900 $19,800 $19,900 $9,800 $100
Pennsylvania 9,800 28,000 $32,000 $32,000 $32,000 $22,200 $0
Rhode Island 17,400 25,900 $34,000 $36,500 $36,500 $19,100 $0
South Carolina 14,300 21,400 $31,100 $32,400 $32,400 $18,100 $0
Utah 12,200 15,800 $25,300 $26,500 $26,500 $14,300 $0
Vermont 17,400 26,800 $35,800 $38,700 $38,700 $21,300 $0
Virginia 8,200 17,100 $25,800 $27,400 $27,400 $19,200 $0
West Virginia 8,000 10,000 $21,200 $22,100 $22,100 $14,100 $0
Wisconsin 14,400 20,700 $26,800 $28,600 $28,500 $14,100 -$100
Average $11,736 $18,474 $25,500 $26,395 $26,440 $14,660 $45
Federal Poverty Line $13,924 $17,603 $22,017 $21,947 $22,314 $8,023 $367
Average as % Poverty Line 84% 105% 116% 120% 118% 36% -2%
Number Above Poverty Line 18 23 26 29 27 9 -2
Number Below Poverty Line 24 19 16 13 15 -9 2
Source: Center on Budget and Policy Priorities
Table 6:
State Income Tax at the Poverty Line for Family of Four, 1994-2010 In States with Below-Poverty Thresholds in 2010
State 1994 2000 2008 2009 2010 Change 2009-10 Percent change after inflation 2009-10* $ Change 1994-2010 Percent change after Inflation 1994-2010*
Montana 211 233 220 225 232 7 1% 21 -25%
Mississippi 0 0 73 70 81 11 14% 81 --
Georgia 116 55 223 218 238 20 7% 122 39%
Ohio 107 113 168 159 171 12 6% 64 9%
Arkansas 214 311 95 83 96 13 14% (118) -70%
Alabama 348 443 483 468 498 30 5% 150 -3%
Missouri 147 80 109 89 102 13 13% (45) -53%
Louisiana 83 133 53 21 33 12 55% (50) -73%
Illinois 334 145 214 172 187 15 7% (147) -62%
Iowa 0 23 268 225 214 -11 -6% 214 --
Oregon 331 278 311 200 234 34 15% (97) -52%
Indiana 379 360 263 65 84 19 27% (295) -85%
Kentucky 499 575 89 0 90 90 -- (409) -88%
West Virginia 215 290 139 0 47 47 -- (168) -85%
Hawaii 406 420 272 266 292 26 8% (114) -51%
AVERAGE $226 $231 $199 $151 $173 $22 13% ($53) -48%
Notes:  Dollar amounts shown are nominal amounts. * "Percent change after inflation" shows the percentage change adjusted for the 1.6 percent increase in the cost of living from 2009 to 2010 and the 47 percent increase in the cost of living from 1994 to 2010, as measured by the Consumer Price Index. Source: Center on Budget and Policy Priorities

End Notes:

[*] Additional data analysis for this report was provided by Mark Enriquez, Dylan Grundman, Andrew Hartsig, Michael Leachman, Christine Mai, Frank Mamo, Michael Mazerov, Elizabeth McNichol, Eleni Orphanides, Katherine Sydor, and Erica Williams.

[1] The District of Columbia also has an income tax.  The nine states without income taxes are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

[2] See, for example, Sylvia A. Allegretto, Basic Family Budgets: Working Families' Incomes Often Fail to Meet Living Expenses Around the U.S., Economic Policy Institute, September 2005.

[3] The 25 states are Connecticut, the District of Columbia, Delaware, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.  For more information on state EITCs, see Erica Williams, Nicholas Johnson, and Jon Shure, "State Earned Income Tax Credits: 2010 Legislative Update," Center on Budget and Policy Priorities, Dec. 9, 2010, http://www.cbpp.org/files/11-10-09sfp.pdf.

[4] This point — made by, among others, Nobel Prize-winner Joseph Stiglitz of Columbia University and Peter Orszag, former director of the Office of Management and Budget — is explained more fully in Nicholas Johnson, "Budget Cuts or Tax Increases at the State Level: Which Is Preferable When the Economy Is Weak?" Center on Budget and Policy Priorities, http://www.cbpp.org/cms/?fa=view&id=1032.

[5] See Arloc Sherman, "Poverty in Early Childhood Has a Long and Harmful Reach," Off the Charts blog March 15, 2011, http://www.offthechartsblog.org/poverty-in-early-childhood-has-long-and-harmful-reach/ , and Greg J. Duncan and Katherine Magneson, "The Long Reach of Childhood Poverty," Pathways Journal, Stanford University, Winter 2011, pp. 10-21, for an overview of this research.

[6] See Greg J. Duncan, Pamela Morris, and Christopher Rodrigues, "Does Money Really Matter?  Estimating Impacts of Family Income on Young Children's Achievement with Data from Random-Assignment Experiments," Developmental Psychology, Volume 47, Issue 5, September 2011, pp.1263-1279; Kevin Milligan and Mark Stabile, "Do Child Tax Benefits Affect the Wellbeing of Children?  Evidence from Canadian Child Benefit Expansions," National Bureau of Economic Research, December 2008; and Gordon Dahl and Lance Lochner, "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit," National Bureau of Economic Research, December 2008

[7] See Greg J. Duncan, Ariel Kalil, and Kathleen M. Ziol-Guest, "Early-Childhood Poverty and Adult Attainment, Behavior and Health," Child Development, January/February 2010, pp. 306-325.

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