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Sunday, October 23, 2016

Roads are crumbling, bridges require repairs, schools need upgrades and public pension systems remain underfunded. How can states and cities find the money to address any of these problems? One way could be through their tax codes.

According to a new report, if the rich paid the same state and local tax rate as the middle class, states and cities would have hundreds of billions of dollars more a year in public revenue.

Last month, the nonpartisan Institute on Taxation and Economic Policy found that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent).

That preceded the new report from the left-leaning groups Good Jobs First and the Keystone Research Center which finds that if tax laws were changed to compel the highest income earners to pay the same rate as everyone else, states and localities would rake in up to $128 billion a year in new revenue. If just the top 1 percent of earners were compelled to pay the typical middle-class tax rate, the report says the change would raise more than $68 billion in new annual revenues.

To put those numbers in context, consider that the price tag of other public priorities is just a fraction of the money that could be raised by equalizing tax rates. For instance, the report notes that free community college would cost $6 billion a year, and universal pre-kindergarten in all states would cost roughly $24 billion. Similarly, the report notes that the total annual price tag of backfilling public pension shortfalls is $30.5 billion. It also finds that five states that would reap the most revenue from equalizing tax rates — Texas, Florida, Pennsylvania, Massachusetts and Ohio — are among those with the largest pension shortfalls.

Of course, despite its findings, the report is likely to have no effect in many state legislatures, as it follows a 2014 election that saw tax-averse Republicans increase their power in the nation’s statehouses.

The National Conference of State Legislatures reports that the GOP now controls more than 55 percent of the country’s 7,383 legislative seats — the most the GOP has controlled since 1920.

Many Republican lawmakers are championing proposals for new state tax cuts, some of which could further widen the gap between the rates paid by the rich and the poor. Indeed, in a recent story headlined “States Consider Increasing Taxes for the Poor and Cutting Them for the Affluent,” The New York Times notes “of the 10 or so Republican governors who have proposed tax increases, nearly all have called for increases in consumption taxes, which hit the poor and middle class harder than the rich.” Some of those governors are simultaneously proposing big income tax cuts that benefit the wealthy.

Meanwhile, Republican governors running for president in 2016 will likely jockey to show who is more devoted to tax cuts and budget cuts. Wisconsin governor Scott Walker, for instance, has proposed both higher education cuts and property tax cuts in his most recent annual budget. Louisiana governor Bobby Jindal already has signed the largest tax cut in his state’s history and has pushed cuts to higher education funding. New Jersey governor Chris Christie has handed out record amounts of corporate tax breaks while declining to make actuarially required payments into his state’s pension system.

The political question, then, is: Will Democrats counter with a different vision? The facts about tax fairness are certainly compelling — the numbers prove that the system could be at once more equal and raise more resources for public priorities. But those numbers will only become a reality if there is a serious political counterweight to the GOP — and that remains a big if.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising and Back to Our Future.”Email him at [email protected], follow him on Twitter @davidsirota or visit his website at

Photo: 401(K)2013 via Flickr

  • chisolm

    State and federal governments should all go to a flat rate income tax and exclude the amount of income deemed to be the poverty rate. Put the IRS out of business, raise the revenue and make nearly all citizens have some skin in the game. Or better yet, implement the fair tax and capture the billions of under the table income. Of course, neither option will ever happen because it would eliminate favorable treatment handed out by politicians buying votes.

    • Allan Richardson

      The “flat tax” proposals actually being considered exclude income from investments, which is the majority of income for two groups: retired people (some of whom live mainly on Social Security, so they don’t have enough investment income to matter; hopefully, the poverty deductions would save them), and the very wealthy. So the wealthy pay nearly nothing, as they do now if they know the right loopholes, while the working poor would pay almost the full flat rate because their income is from labor. And with no return to file, there would be no loopholes for poor and middle class.

      The “fair tax” started out as a reasonable idea: replace income tax with a 30 percent sales tax on everything, but subsidize the needy by sending them a “prebate” of 30 percent of the poverty level of spending, so they would, in theory, end up paying only 30 percent of what they spend ABOVE that. I see three problems with that.

      First, since billionaires only spend on consumer goods 1-5 percent of their total income (5 percent in yacht purchasing years, more like 1 percent in between), they would only pay the 30 percent sales tax on that tiny amount; in other words, instead of 30 percent of their income, they would pay 0.3 percent to 1.5 percent. Maybe that’s why millionaires and billionaires are pushing it?

      Second, in what form and how often would the “prebate” go to those poor people who are already spending 100 percent of their income, to relieve them from adding 30 percent to that? Once a year tax credits don’t help them very effectively now, so many have to estimate such things as EITC or Child Credit and borrow against it on their paychecks. it’s hard enough to know how to get an IRS refund to a poor taxpayer already, just once a year; the poor move more often than the middle class, usually with no notice, and are less likely to HAVE a checking account, much less keep the same one for years. And if you want to send the prebate more often, such as monthly, so it will do some good, the “keeping up with the taxpayer’s banking” problem is twelve times worse! Despite the stipulation that prebate checks would be the same amount for everyone, it would take a bureaucracy AS BIG as the IRS to keep track of all this. A bureaucracy whose MISSION is to SPEND rather than to COLLECT. Imagine the Social Security Administration if everyone in the country were entitled to a check.

      And third, BECAUSE of that second problem, the “fair tax” would end up, in REALITY, dropping the “prebate” idea which would make it fairer to the working poor, and become JUST A SALES TAX of 30 percent. Lower income people would have their cost of living rise 30 percent as soon as it goes into effect, so if they are already pushing the limits of their income, how could they spend 30 percent MORE? And meanwhile the richer you are, the less of your income you spend on consumer goods, so your tax rate becomes lower and lower. This is called a REGRESSIVE tax, the most unfair of all, because the burden is placed on those who can least afford it. It would be like a wagon full of elephants being pulled by a team of starving men. Which is great, IF you’re an elephant. But you may need to get a bigger whip.

      • For many years, I have advocated a National Sales Tax on everything except food.

        Food is the largest single expenditure for the poor after rent, and is absolutely a necessity, so no tax on food used to cook meals. This still leaves a tax on prepared foods, because to exempt that would mean a tax break for those who can afford to dine in expensive restaurants. Those who can afford such extravagances will pay more in taxes.

        I considered ways to exempt housing, but ran into the same problem as with prepared foods. Anyone who can afford a McMansion will pay more taxes than one buying a moderate home. An exemption would be a tax break for the wealthy.

        A sales tax is progressive, not regressive, because those who choose to spend more, pay more tax. And that is the key – choice! Instead of taxing one’s labor as with income tax, sales tax taxes the life-style one CHOOSES. The tax on a used Toyota is much less than the tax on a BMW. We can’t tell people how to spend their money, but when they make choices they will pay the tax based on their own choices. Some will make poor choices, but who are we to limit those choices? Income tax does limit one’s choices by removing money before one can choose how to spend it.

        To keep it fair, the sales tax must replace ALL taxes, not just income tax. The poor are currently overburdened by the many and various excise taxes loaded onto phone bills and utility bills – things everyone needs, and which affect the poor much more than the rich.

        Corporate taxes should also be abolished. Corporations pass the tax burden onto consumers, which also impacts the poor more than the rich.

        Finally, a sales tax is fairer than an income tax because there are no exemptions (except food) and no loop-holes.
        A high-priced accountant can’t help someone avoid sales tax. It also can’t be used by politicians to grant favors to some individuals or industries or penalize others…


        • chisolm

          Your last statement is absolutely correct. The fair tax is basically a sales tax with a monthly stipend to cover the tax on income spent up to the poverty level. This plan taxes even the illegal transactions that don’t get claimed as income for tax purposes. It also eliminates all federal taxes and corporations pay the same consumer tax as the rest of us. No deductions for anything. Best feature of the fair tax is that it eliminates the IRS and loopholes. When you consume you pay the tax, period.

          • Suralin

            The inherent problem with sales taxes of that caliber is that they are fairly easy to undermine if they get too large.

            Take, for instance, the sales taxes levied on tobacco in New York City. That in and of itself has led to a burgeoning black market for smuggled cigarettes. Replacing all taxes with a sales tax just invites similar dodges on a much larger scale.

            The other major problem is that sales taxes are inherently regressive. Middle-class and affluent people can (and nearly always do) save part of their money rather than spend it on essentials. Those living paycheck-to-paycheck have no such buffer, and would be by far the hardest hit by such a change to the tax code.

          • GraceAdams830

            The Wall Street Journal’s proposal for a sales tax was to tax only what was sold through about a dozen large retailers like WalMart, leaving untaxed sales of second hand goods and goods sold directly by an artisan or farmer. This is a HUGE loophole, but better at least than claiming to try to tax all sales and having huge amounts of sales fall through the cracks into a black market.

        • Wrily

          Sales tax is regressive because the poor are forced to spend all their income while the wealthy just sit on most of theirs.

          • I’m sure someone told you that. That someone lied to you.
            Read my post and chisolm’s posts and really think about it.
            BTW, the poor are already spending all their income. That’s why they’re poor. The wealthy don’t sit on theirs – they invest it, which is how companies can afford to hire people. Where did you think jobs come from?

          • Wrily

            I think you’re lying to me. A progressive tax is one where the percentage of tax increases as the base increases. You don’t get to change the definition to suit your purposes.
            Jobs come from one place, and that is demand. No one ever “created” a job just to be creating a job. They do so to fill a demand.
            I see the wealthy investing their money trying to buy our political system. I see them investing their money trying to block any progress that would undermine their own interests. I see the wealthy taking their money off shore to avoid paying their fair share of taxes.

          • Spoken like a true socialist.

            I haven’t changed the definition. Buy an expensive item, pay a large amount of sales tax. Settle for a cheaper alternative, pay less tax. That’s progressive.

            But it’s not based on how much you earn. It’s based on how you choose to spend your money. It penalizes those who live above their means and rewards those who are careful with their money.

            You’re right about demand creating jobs – sort of. Even with demand for a particular type of product, someone has to be willing to invest a lot of money to build the facilities to build that product, pay rent, utilities, insurance and wages to meet the demand. Then, if the demand slacks off, the investor stands to lose everything he invested.

            Which is why I’ve never been offered a job by a poor person.

            You see wealthy people doing everything they can to reduce the amount of taxes they have to pay. Gee, that’s terrible. I suppose if you somehow became wealthy you would be happy to pay the government half of what you had?

          • Wrily

            You, apparently, don’t understand the definition of progressive taxation.

            Yes, I see wealthy people doing everything they can to reduce the amount of taxes they pay, including buying politicians to change the tax laws to favor the wealthy. Much like you are advocating now.

            Keep believing your fascist lies if you like, but I won’t.

          • I definitely understand the definition of progressive taxation. It is based solely on envy and embraced by losers who want other people to pay so they won’t have to.

            The wealthiest 10% already pay 80% of the taxes collected, but you won’t be satisfied as long as anyone has more than you.

            The only things that could change your mind are:
            Getting wealthy, which is unlikely because that would take an effort, or; Getting a conscience.

          • Wrily

            Lies, lies, and more lies. Keep telling them and maybe some will believe. Goebbels would be proud of you.

          • We need to focus on the big picture & get big money out of the conversation. Ever wonder why ‘sales tax’ & ‘inheritance taxes’ are so hard to get rid of? When was the last time anyone U know had a private audience w/U’r representative? Or that audience led to a ‘break’ on their taxes? That’s what big money, low taxes-paid, means to the relationship between citizen/representatives. Til we get that understood, the debate will be like now – a savage shouting match among 99% of the public, w/the 1% laughing all the way to the bank…

  • The ‘Flat Tax’ theory, like the similar ‘Flat Earth’ theory, was designed to keep people complacent & ignorant about the full potential of… Anyway, during the 1990’s, there was full employment & therefore, a full compliment of the broad array of what Civil Society was FULLY capable of. The compromised, intimidated (corporate) national media has failed to do their job of fully exploring the contrasts between the Bush economy & implications, vs. the Clinton economy & full implications – both at a full national & global scale. As such, people don’t understand the ‘how’/’why’ of the necessity of taxes. Having not read the Federalist Papers, it’s hard to have this discussion, since people don’t appreciate Liberal/Progressive Civil Society that is its results. As with the mid-late 1990’s, ‘EVERYTHING WORKED’, b/c everybody pitched in & paid their FAIR SHARE of taxes due. No one wants to pay taxes. That’s goes w/out saying. But if we want a FREE state, w/liberties & enhanced quality of life & equality of access to the COMMON GOOD, taxes are ABSOLUTELY NECESSARY! No breaks. No preference. NO EXCEPTIONS!!! Stop fooling U’r selves. U want QUALITY governance? U PAY FOR IT!!! Each citizen. None more or less than any other. Now, lets get the money & the whores (Dems AND Rep’s) out of office by RECALL & then U’r talking sense to we Liberal/Progressives & more intelligent, enlightened voters…