Just Taxing the 1 Percent as Much as We Tax the Poor Would Yield Billions for Cash-Strapped States

A new report shows that states and cities effectively tax the 1 percent at only 5.4 percent—half what they tax the poor (10.9 percent).

David SirotaFebruary 20, 2015

(Glenn Halog / Flickr)

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. 

If just the top 1 percent of earners were compelled to pay the typical middle-class tax rate, it would raise more than $68 billion in new annual revenues.

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 Gov. Scott Walk­er, for instance, has pro­posed both high­er edu­ca­tion cuts and prop­er­ty tax cuts in his most recent annu­al bud­get. Louisiana Gov. Bob­by Jin­dal already has signed the largest tax cut in his state’s his­to­ry and has pushed cuts to high­er edu­ca­tion fund­ing. New Jer­sey Gov. 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 an award­win­ning inves­tiga­tive jour­nal­ist and an In These Times senior edi­tor. He served as speech writer for Bernie Sanders’ 2020 cam­paign. Fol­low him on Twit­ter @davidsirota.
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