State Income Taxes Push Many Working-Poor Families Deeper Into Poverty

WASHINGTON, Nov. 4 /PRNewswire-USNewswire/ -- Sixteen states taxed
working-poor families deeper into poverty last year, according to a new report
from the Center on Budget and Policy Priorities. Income tax bills on poor
families in those 16 states ranged from a few dollars to several hundred
dollars, which is a significant amount for a family struggling to make ends
meet, the report said.

"Undermining families' efforts to work their way out of poverty is never a
good idea," said Phil Oliff, the report's co-author. "But it's especially
harmful in the current recession, when people are already struggling just to
get by."

The report measures the "tax threshold" in each state -- the income level at
which families begin owing income taxes. In 16 of the 42 states that levy an
income tax, the threshold for two-parent families of four was below $22,017,
the 2008 poverty line for such a family. The remaining states as well as the
federal government do not tax working poor families.

Two fewer states taxed poor families than in 2007. Michigan adopted an Earned
Income Tax Credit (EITC) that pushed its threshold slightly above the poverty
line. Oklahoma made changes to its income tax deductions and rates, and
expanded a credit for families with children, lifting its threshold above the
poverty line for two-parent families of four. Although Hawaii and Louisiana
made significant improvements to their tax systems, they remain among the 16
states that tax poor families. A number of other states made significant
improvements.

In several states, income-tax treatment of the poor worsened as inflation
eroded the value of provisions intended to protect the poor from taxation.
This erosion coincided with a rising level of poverty and joblessness
resulting from the recession.

Among the report's findings:
-- Sixteen states, out of the 42 with an income tax, taxed working-poor,
married couples with two children in 2008: Alabama, Arkansas, Georgia,
Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi,
Missouri, Montana, North Carolina, Ohio, Oregon and West Virginia.
-- Michigan and Oklahoma stopped taxing poor families in 2007, and eight
other states implemented changes to reduce low-income families' tax
bills. Hawaii and West Virginia, both of which in 2007 had levied
some
of the highest taxes on low-income families, also made improvements in
2008.
-- On the other hand, in 23 states the value of provisions that protect
low-income families from taxation eroded, in large part due to a
failure
to adjust them for inflation. As a result, poor and/or near-poor
families' tax bills in those states rose.

-- The number of states taxing extremely poor families of four - those
with
incomes below three-quarters of the poverty line ($16,513) - decreased
from nine in 2007 to six in 2008. Three states that previously taxed
such families began exempting them: Hawaii, Michigan, and West
Virginia. States still taxing extremely poor families are: Alabama,
Georgia, Illinois, Indiana, Montana, and Ohio.

Over the last two decades, state policymakers increasingly have viewed the
exemption of poor families from taxation as a straightforward way to reduce
poverty and support work. The number of states levying income tax on poor
two-parent families of four decreased from 24 to 16 between 1991 and 2008.
The federal government has exempted poor families from tax since the
mid-1980s.

Even in a time of widespread state budget shortfalls, there are a number of
relatively inexpensive, effective solutions for state policymakers to
consider. These include state EITCs and other low-income tax credits, no-tax
"floors" (an income level below which a family owes no tax), and adequate
personal exemptions and standard deductions.

"Dire economic conditions are already reducing states' tax revenue. This
makes it harder for states to enact new tax cuts targeted to poor families,"
said Oliff. "But doing so should still be a priority. Taxing people deeper
into poverty runs counter to the goal of helping families achieve
self-sufficiency."

The full report is available at
http://www.cbpp.org/cms/index.cfm?fa=view&id=2976. In addition to examining
families of four, the report also analyzes state income taxes for
single-parent families of three.

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan
research organization and policy institute that conducts research and analysis
on a range of government policies and programs. It is supported primarily by
foundation grants.

SOURCE Center on Budget and Policy Priorities

Shannon Spillane of the Center on Budget and Policy Priorities,
+1-202-408-1080, spillane@cbpp.org