off the charts
POLICY INSIGHT
BEYOND THE NUMBERS

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
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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.