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Many States Still Taxing the Incomes of Working-Poor Families

The successful bipartisan effort over the past two decades to reduce the state income taxes of working-poor families came to a standstill in 2010, our latest survey finds.

Since 1990, the number of states levying income taxes on poor, two-parent families of four has dropped by well over a third.  But no new states exempted working-poor families from income taxes in 2010, and in most of the states where such families still pay in

come taxes, they saw their income taxes increase.

States’ lack of progress in 2010 means that last year:

  • Fifteen of the 42 states with an income tax levied the tax on working, two-parent families of four with incomes at or below the poverty line, which is about $22,300 for a family of that size (see table).
  • In a number of states, these working-poor families faced income tax bills of several hundred dollars — $498 in Alabama, $292 in Hawaii, $238 in Georgia, and $234 in Oregon.  That’s a lot of money for a family struggling to make ends meet.
  • Several states continued to tax families living in severe poverty.  Alabama, Georgia, Illinois, Montana, and Ohio taxed the income of two-parent families of four earning less than three-quarters of the poverty line, or about $16,700.
  • 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.

Since the recession hit, the severe drop in revenues has limited states’ ability to reduce the taxes of poor families.  Nonetheless, doing so should remain a priority.

It can help to make work pay for these families, offsetting work-related costs like transportation and child care expenses.  And research suggests that increasing the after-tax incomes of poor families can boost their children’s chances of success in the classroom and ultimately in the workforce.

Unfortunately, a few states enacted measures over the last two years that raise taxes on low-income families.  As we’ll explain tomorrow, these measures hurt not only low-income families, but also the broader economy.