I explained yesterday that, like the federal government, most states exempt the incomes of working-poor families from taxation, but that states’ progress in eliminating the income taxes of working poor families largely ground to a halt in 2011. In recent years, a range of policymakers, political candidates, and commentators have questioned the wisdom of those exemptions. They argue that everyone should have some “skin in the game” when it comes to paying for public services. These arguments are off base.
In reality, poor families have plenty of skin in the game – whether or not they pay income tax. That’s because they pay significant amounts of other state and local taxes such as sales and property taxes.
In fact, these taxes take a bigger bite out of the incomes of low-income residents than of high-income residents, and they actually outweigh the benefits of not paying income taxes. In 2009, the lowest income 20 percent of taxpayers paid over 12 percent of their income in state and local taxes, while the highest income one percent of taxpayers paid just over 8 percent.
It makes little sense for a family that struggles to put food on the table to pay a bigger share of their income in taxes than the wealthiest taxpayers. Eliminating the income taxes of poor families can improve this imbalance.