Angela Mapes Turner, writing for the Fort Wayne Journal Gazette, has an article reporting that Indiana has the third lowest threshold in the country for taxing low income families.
The state’s income tax threshold last year for a two-parent family of four – the lowest income at which a family has state income tax liability – was $15,500, third lowest in the nation.
A two-parent family of four at the federal poverty line, or earning $22,017, owed $263 in Indiana income tax last year. That same family would have owed $214 in Illinois, $168 in Ohio and $89 in Kentucky, according to the report.
Alabama taxes low-income families the heaviest. The system starts to look dysfunctional in those situations where you tax their income on one hand but then turn around and provide subsidies on the other, through food stamps, medicaid, TANF, or whatever.
No more or less dysfunctional/absurd than taxing a farmer at high levels and then giving a gigantic subsidy. Quoth Monty Python in the Dennis Moore sketch, “this redistribution of wealth is trickier than I thought!”
Bravo, Doug…Now, here’s a great issue! The Center for Budget and Policy Priorities has been reporting on this for years. Good stuff!
Kentucky used to be #1 in this dubious category until Gov. Ernie Fletcher worked with his legislature a few years ago, moving them way down the list. (I used to love joking about that in class– “it’s good to see Kentucky #1 in something”.)
Now, if I can get just get people to be as passionate about reducing or ending the federal payroll tax on the working poor. Every dollar earned below the poverty line gets nailed by a 15.3% tax. So, this concern about state income taxes is small peanuts compared to that beauty!
Amazingly, many Democrats want to increase it further to help fund health care “reform”. And people think that the Dems care about the working poor and middle class. Ahh…people will believe all sorts of crazy things.
You probably know a lot more about this than I do, Eric, but maybe you could give me your thoughts on Greenspan’s move in the 80s to increase the payroll taxes coupled with the use of Social Security to pay for general fund expenditures coupled with Greenspan’s support in the early 00s supporting the Bush tax cuts on the basis of the “surplus.”
To me, it seemed like kind of a bait and switch. Increase payroll taxes on lower income earners, pay for general expenditures with that money, then implement tax cuts that benefit the wealthy (at least when compared with the payroll taxes increased in the 80s).
Sounds like you’ve done a lot of thinking on this issue.
Taxing low income people to help fund health services might even make sense, though I’ll admit it sounds odd. Certainly low income people will use the health care services. Low income people pay gas tax, right? The advantage is that low income people might not have access to health insurance. Sure, most likely low income health services users won’t contribute as much revenue to the system as they consume, but it doesn’t necessarily follow that they can’t contribute something. It all helps.
I’ve thought about this a lot– and have written about it here previously.
What do I think? In a nutshell…
-Social Security is a mess;
-the way politicians use it to move monies around (and then make claims about “lock boxes”) is a joke (see also: most of the Clinton “budget surpluses”);
-and the way it’s financed (including the increases in the 1980s) is an abomination (workers at the poverty lines lose $3,000 per year from this!).
Now, I’ll tell you what I really feel…just kidding!
None of this will matter until politicians, knowledgeable people, and/or activists get a clue and a conscience. You’d most easily hope to find that from Dems. But sadly, they’re far more interested in maintaining political power than passing good public policy.