March 4, 1999, 12:01 a.m. ET

CONTACT:  Nicholas Johnson, Elizabeth McNichol,
Henry Griggs, Toni Grickowski
(202) 408-1080

Most States Now Exempt Poor Families From Income Tax,
But Tax Relief is Overdue in Many Others

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Despite widespread tax reductions and a strong economy, 19 of the 42 states with income taxes continue to tax poor working families, according to a new study of state income-tax thresholds. But 23 others now exempt from income taxation families of three or four with incomes at or below the federal poverty level, the highest number of states in recent history.

The annual report, published by the Center on Budget and Policy Priorities, assesses the impact of each state's income tax on low-income families in 1998. It focuses on income tax thresholds, the income level at which a family would begin to owe state income tax. This year's report also evaluates trends in state income tax policies since 1991.

The biggest changes have come in the last two years, as five states stopped taxing the incomes of poor families, and six others brought their thresholds up closer to the poverty line. Still, in six states even very poor families with incomes below half of the poverty line remain liable to taxation.

The 1998 poverty line was $16,655 for a family of four and $13,001 for a family of three.

"Overall, we see a dramatic and heartening trend, but it does not go far enough," said Elizabeth McNichol, director of the Center's State Fiscal Project and co-author of the report. "Income tax relief is one of the simplest ways states can help low-income working families to meet the costs of child care, transportation and other expenses and thereby become self-sufficient."

The new reductions for the working poor reflect, in part, a growing awareness among policymakers of the importance of "making work pay" for low-income families. Many states are urging more families to make the transition from welfare to work, and welfare caseloads are declining.

"The majority of states have recognized the inconsistency of encouraging poor families to work and then taxing them back under the poverty line," said Nicholas Johnson, co-author of the report. Still, he added, "many parents are working long hours for little money as they struggle to make the transition from welfare to work. At a time when most states no longer tax the poor, to continue to do so is unconscionable and counterproductive."

Recent evidence from a number of states shows that while welfare caseloads are declining and more families have earnings from work, the earnings of welfare recipients who find jobs are rarely sufficient to lift their families out of poverty. A number of studies show that welfare recipients who find jobs are working a substantial number of hours but have average earnings of only $2,000 to $2,700 per quarter, or $8,000 to $10,800 per year. Many earn less.

The report notes that states have made more progress toward relieving the tax burden on working poor families in the last two years than they made over the previous six years. From 1991 to 1996, the number of states that taxed the incomes of poor families did not change, and only six of the states that taxed the poor in 1991 increased their thresholds by amounts greater than the increases in the poverty line during that time. By contrast, in the past two years, six states brought their thresholds substantially closer to the poverty line, while five other states ceased taxing the incomes of poor families altogether. In particular:

Not all poor families are benefitting from this trend. In some states, the burden of the income tax on the poor is rising. Of the 19 states that continue to tax the incomes of poor families of three or four, 11 have allowed their thresholds to decline relative to the poverty line during the 1990s. The poverty line is adjusted each year to reflect the increasing cost of supporting a family, but many states' income tax thresholds are not similarly adjusted.

In 1998, low-income families in states with below-poverty thresholds were pushed deeper into poverty. The report finds:

By contrast, the report finds a substantial number of states assisted low- and moderate-income working families by levying no income tax until a family's income was well above the poverty line or by offering refundable tax credits for low-income families.

States used a variety of policies to relieve income tax burdens on the poor. Most of the states that did not tax the working poor allowed relatively large deductions from income through personal and dependent exemptions and standard deductions. In addition, 25 states had adopted measures that specifically target tax relief on low-income families.

Although most state economies expanded through the 1990s and more than half of the states enacted significant personal income tax cuts in the last four years, somewhat fewer states made it a priority to end the taxation of the poor. Thirteen of the 15 states with the largest income tax cuts in recent years chose to cut top tax rates or cut all tax rates in ways that provide a disproportionate benefit to higher-income taxpayers. Six of the 15 states that enacted the largest personal income tax cuts in recent years — Delaware, Hawaii, Michigan, New Jersey, Ohio, and Oregon — still have income tax thresholds below the poverty line.

This report was issued by the State Fiscal Project of the Center on Budget and Policy Priorities, a national nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs, with an emphasis on those affecting low- and moderate-income households. The State Fiscal Project, which was founded in 1992, prepares analyses and provides technical assistance on state tax and budget issues. The Center on Budget and Policy Priorities is supported primarily by foundation grants.

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State Income Tax Thresholds for Two-Parent Families of Four, 1998

Poverty line (estimated): $16,655

Rank State Threshold Rank State


1 Alabama $4,600 20 North Carolina $17,000
2 Kentucky 5,000 21 Iowa


3 Illinois 5,200 21 Mississippi 17,200
4 Hawaii 6,100 23 South Carolina 17,900
5 New Jersey 7,500 23 Idaho 17,900
6 Virginia 8,200 23 Colorado 17,900
7 Indiana 8,500 23 District of Columbia 17,900
8 Montana 9,000 27 Nebraska 18,300
9 West Virginia 10,000 28 North Dakota 18,400
10 Michigan 11,800 29 Wisconsin 18,700
11 Missouri 12,000 29 Maine 18,700
12 Louisiana 12,300 31 New Mexico 20,300
13 Ohio 12,500 32 Kansas 20,700
13 Oklahoma 12,500 33 Massachusetts 21,100
15 Delaware 12,700 34 New York 22,800
16 Oregon 14,200 35 Arizona 23,600
17 Utah 15,200 36 Connecticut 24,100
18 Georgia 15,300 37 Maryland 24,300
19 Arkansas 15,600 38 Rhode Island 25,000
      38 Vermont 25,000
      38 Pennsylvania 25,000
      41 Minnesota 25,200
      42 California 36,100
Average Threshold 1998 $10,432 Average Threshold 1998 $21,317
Amount Below Poverty $6,223 Amount Above Poverty 4,662
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 1998 poverty line is a Censes Bureau estimate based on the actual 1997 line adjusted for inflation. 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

State Income Tax at Poverty Line for
Two-Parent Families of Four, 1998


1 Kentucky $16,655 $550
2 Hawaii 16,655 519
3 Alabama 16,655 408
4 Indiana 16,655 396
5 Illinois 16,655 344
6 Virginia 16,655 293
7 Arkansas 16,655 273
8 West Virginia 16,655 260
9 Oregon 16,655 235
10 Delaware 16,655 230
11 Montana 16,655 221
12 Michigan 16,655 214
13 Oklahoma 16,655 194
14 New Jersey 16,655 163
15 Missouri 16,655 116
16 Ohio 16,655 93
17 Louisiana 16,655 88
18 Utah 16,655 33
19 Georgia 16,655 27
20 Arizona 16,655 0
20 California 16,655 0
20 Colorado 16,655 0
20 Connecticut 16,655 0
20 District of Columbia 16,655 0
20 Idaho* 16,655 0
20 Iowa 16,655 0
20 Maine 16,655 0
20 Mississippi 16,655 0
20 Nebraska 16,655 0
20 North Carolina 16,655 0
20 North Dakota 16,655 0
20 Pennsylvania 16,655 0
20 Rhode Island 16,655 0
20 South Carolina 16,655 0
35 Maryland 16,655 (14)
36 New Mexico 16,655 (80)
37 Kansas 16,655 (224)
38 Massachusetts 16,655 (283)
39 Wisconsin 16,655 (396)
40 New York 16,655 (499)
41 Vermont 16,655 (708)
42 Minnesota 16,655 (1,127)

*The income tax threshold for a two-parent family of four in Idaho was $17,900 in 1998 but there was a $10 permanent building fund tax on each filing household.
Source: Center on Budget and Policy Priorities

Budget and Policy Groups Providing Local Comments

Alabama Arise
Phone: 334-832-9060
Contact: Kimble Forrister
Press briefing to be held on March 4, 1999 at the Alabama Statehouse.
Commonwealth Center for Fiscal Policy
Phone: 617-426-1228 ext.102
Contact: Jim St. George
Children's Action Alliance
Phone: 602-266-0707
Contact: Elizabeth Hudgins
Michigan Budget and Tax Policy Project
Phone: 517-487-5436
Contact: Sharon Parks

Arkansas Advocates for Children & Families
Phone: 501-371-9678
Contact: Richard Huddleston

Minnesota Budget Project
Phone: 612-642-1904
Contact: Matt Shands
California Budget Project
Phone: 916-444-0500
Contact: Jean Ross
Citizens for Missouri's Children
Phone: 314-647-2003
Contact: Ruth Ehresman
Colorado Budget Project
Phone: 303-573-5669
Contact: Maureen Farrell
Montana's People's Action
Phone: 406-543-0592
Contact: Jim Fleischmann
Connecticut Voices for Children
Phone: 203-498-4240
Contact: Shelley Geballe
New Jersey
Association for Children of New Jersey
Phone: 973-643-3876
Contact: Ciro Scalera
Georgians for Children
Phone: 404-365-8948
Contacts: Laurie Iscaro and Melinda Michael
New York
Fiscal Policy Institute
Phone: 518-786-3156
Contact: Frank Mauro
United Vision for Idaho
Phone: 208-882-0492
Contact: Judith Brown
North Carolina
North Carolina Budget and Tax Center
Phone: 919-856-2158
Contact: Dan Gerlach

Voices for Illinois Children
Phone: 312-516-5556
Contact: Brian Matakis

Community Action Project of Tulsa
Phone: 918-835-2882
Contact: Steve Dow

Indiana Coalition on Housing & Homeless Issues
Phone: 317-636-8819
Contacts: Mark St. John and Beryl Cohen

Children's Defense Fund
Phone: 614-221-2244
Contact: Mark Real

Kansas Catholic Conference
Phone: 913-321-9400
Contact: Sister Therese Bangert

Oregon Center for Public Policy
Phone: 503-873-1201
Contacts: Chuck Sheketoff and Anna Braun
Kentucky Youth Advocates
Phone: 502-875-4865
Contact: Debra Miller

Kentucky Task Force on Hunger
Phone: 606-266-2521
Contact: Anne Joseph

Pennsylvania Partnerships for Children
Phone: 717-236-5680
Contact: Joan Benso

Agenda for Children
Phone: 504-586-8509
Contact: Judy Watts
Utah Issues
Phone: 801-521-2035
Contacts: Patrick Poulin and Gina Cornia

Maine Center for Economic Policy
Phone: 207-622-7381
Contact: Christopher St. John

VA Interfaith Center on Public Policy
Phone: 804-643-2474
Contact: Rev. Fletcher Lowe
Maryland Budget & Tax Policy Institute
Phone: 301-565-0505
Contact: Steve Bartolomei-Hill
West Virginia
West Virginia Economic Justice Project
Phone: 304-529-3890
Contact: Rick Wilson
WI Council on Children & Families
Phone: 608-284-0580
Contact: Jon Peacock

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