I believe liberals are most convincing when they are arguing for tax relief for the poor. Too often liberals are consumed with either screwing the rich or raising revenue from any source to fund crony public works or bloated union bureaucracies. The Institute on Taxation and Economic Policy (ITEP) recently released a report showcasing how state tax laws can affect the poor. "State Tax Codes as Poverty Fighting Tools" is well worth reading. It discusses two very serious state tax policy issues.
First, ITEP asserts that the heavy reliance on the sales tax hurts the poor. There is nothing new with that argument; we have known the sales tax is regressive since its inception. But it is important to consider as more states are thinking about reducing their reliance on income taxes and shifting the burden to those paying sales taxes. I'm no fan of the income tax. But I would reduce income taxes by cutting government services, not by shifting the burdens to the poor. In any event, the ITEP argument is sound and deserves consideration.
As importantly, ITEP highlights the problems with states reducing their earned income tax credits. I have never been a great fan of the EITC because it puts the tax collector in the position of benefits distributor. Twenty-six states currently operate EITC systems. And the truth is that they provide meaningful relief to poor taxpayers. Remember, you have to work to receive the credits -- so they're not exactly providing an incentive to the proverbial moochers.
The new report is a follow-up to ITEP's January 30 report, "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States." That report found that the poorest 20 percent of American taxpayers paid an average 11.1 percent of their incomes in state and local taxes, and middle-income taxpayers paid an average of 9.4 percent, but the wealthiest 1 percent of taxpayers paid 5.6 percent. There is nothing just in that outcome. In this latest report, ITEP gets it right by focusing on tax outcomes for the poor.