How Income Taxes Are Hurting America’s Poor the Most

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Whether tax day is a nightmare or a painless process that ends in a nice little payout depends on the person, state, income, and job. But it’s probably fair to say that even those looking forward to a tax refund or who owe nothing in back taxes don’t look forward to the paperwork. Yes, it’s a dreaded time of year for most Americans, but according to a study by Gallup, some Americans feel a greater sense of injustice around tax time than others.

However, this group has changed somewhat over the years. From 2001 through 2004, those making the least found income taxes to be balanced the best, followed by those making the second least, at 64% and 59%, respectively; those making the most were bothered the greatest by the fairness of taxes. This changed over the course of the recession, leading up to present day in one major demographic.

The perceptions of the middle-income bracket and the wealthy demographic have remained fairly steady throughout the years. There was a slight rise and fall for the middle and a significant rise in fairness perception during the recession for the wealthy, followed by a drop to previous levels in the past few years. But the lower-income bracket — anyone making less than $30,000 — has steadily been dropping in its perception of taxes as fair, falling incrementally between 2001 and 2015, from 64% saying income taxes were fair in 2001 to 55% in 2015.

Tax reform has been a major item for both Democrats and Republicans in the past year, though agreements on where changes should be made are few and far between. But with elections coming up, much of the focus has been on the middle class. This tax season, let’s take a look at those in lower-income tax brackets and the difficulties faced.

First, let’s examine which state income taxes are the most exacting on a lower-income demographic. CNN Money rates South Dakota, Washington, Texas, Illinois, and Florida as the most expensive states for the poor versus the wealthy. In Washington, those with the smallest paycheck pay approximately 17% worth of their income on state and local taxes, while wealthier residents pay only 2.4%.

The others see more of a 11% to 13% and 2% to 5% split, all weighing heavily on those with lower incomes. It’s worth noting that, compared to other states, Washington, Texas, and Florida have relatively normal, or even low taxes — but that doesn’t change the difference in the degree of effect taxes have on one group versus another. These state taxes mean that those Americans who make so little as to be excused from national taxes may still be struggling to make ends meet.

The Corporation for Enterprise Development (CFED) produces a tax-based Assets and Opportunity Scorecard with a breakdown of percentage of income by state and income demographic. Of all the states, last year, Delaware had the lowest income percentage taxed on its citizens: 5.5% for the bottom 20%% and 4.8% for the top 1%.

With slightly higher overall taxes but a marginally better ratio is Washington, D.C., which taxes 5.8% of the bottom 20%’s income and 6.4% of the top 1% for a ratio of 0.9. The worst ratios were seen in Wyoming, Washington, Florida, South Dakota, and Nevada, at between 5.9 and 7.0.

National and state debt are important priorities, but it’s clear that keeping the tax rate of the middle class down, or keeping overall state tax rates low to attract business and workers, does not necessarily relieve the continued struggle of America’s poor. According to a 2014 report from the Congressional Budget Office, the federal debt held by the public is set to substantially increase in the next 20 years.

“The harmful effects that such large debt would have on the economy would worsen the budget outlook. Under current law, the increase in debt relative to the size of the economy, combined with a gradual increase in marginal tax rates (the rates that would apply to an additional dollar of income), would reduce economic output and raise interest rates,” according to the report’s summary.

The issue is not one of keeping taxes low — though that plays a role — but rather one of distribution. As many politicians on both sides of the aisle have pointed out, there is a simplification and restructuring of loopholes in the tax system that could create a more streamlined and effective system, perhaps leaving more room to reduce the impact on the group of Americans being most affected by taxes.

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