The rich really are getting richer, and that's thanks in no small part to regressive
tax policies, both in Washington and many state capitals.
A new analysis shows that income inequality grew again in 2005, with the richest
one percent of U.S. earners making their largest share of national income since 1928.
Those 300,000 earners took in as much as the the bottom 150 million Americans.
According to a 2003 report by the Institute on Taxation and Economic Policy that
analyzes state tax systems , it's not just federal tax policies that favor the rich. "Our
primary finding is that most state and local tax systems take a much greater share of
income from middle- and low-income families than from the wealthy," the 2003 report
concludes. "That is, most state tax systems are regressive. In fact, only four states require
their best-off citizens to pay as much of their incomes in taxes as middle-income families
have to pay. Only eight states tax their wealthiest residents at effective tax rates as high
as the poorest taxpayers are required to pay. And the disparities in effective tax rates
between middle- and low-income families and the well off are not trivial. Most states tax
the wealthy at rates that are much lower than the rates on middle- and low-income
Tax changes enacted in Washington the past few years have also greatly favored
the wealthy and paved the way to frightening deficits . Efforts to make those tax cuts
permanent will only widen the gulf between the affluent and the middle class and poor.
Among the most inequitable of the tax changes have been reductions in tax rates
on capital gains and dividends. And the notions that the massive tax cuts of recent years
have significantly boosted federal revenues and stimulated economic growth are dubious
at best .
Check out Citizens for Justice for a year-by-year scorecard of recent tax changes .
Household income data recently released by the Congressional Budget Office
show that income inequality is continuing to widen. Look up your state here and see the
distributional effects of recent tax cuts state by state.
Neither Wyoming nor Nevada has an individual income tax, instead relying heavily
on regressive sales taxes that hit the poor especially hard. Income taxes are most fair
when they are progressive. In March, 2007, Utah’s governor signed the biggest tax
reform package in that state’s history, abandoning a progressive structure and creating a
flat 5% rate for all. On the face of it, that could look like a windfall for the rich, but
advocates for the poor are pleased that Utah’s new law phases out tax credits for the
wealthy and protects the poorest with a structure indexed for inflation. We’ll watch to
see how it plays out.
America became great on the strength of our middle class. Our vast working
class made us the envy of the world. It is not an easy process, but Western Progress
believes the Rocky Mountain States can take the lead in tax reform that promotes
equitable contributions from low and middle class wage earners and also reduce the
advantage given to capital over labor.