Tuesday, March 12, 2013

What happens when you tax the poor

We haven't heard much from N.C. lawmakers lately about tax reform, save for a flurry of discussion as the session opened in January. But N.C. Senate leader Phil Berger said then we'll have tax legislation before everyone goes home this spring. It's a priority for Republicans in the House and Senate. So it's coming.

That's a good thing. As we've said regularly here, our state has an antiquated tax code, based on an agricultural economy that no longer drives North Carolina. We need a tax system that produces enough revenue to meet the state's needs, of course, but one that also can absorb the volatility of booms and recessions, is attractive to businesses who might want to move here, and is fair.

We're worried, however, that Republicans don't care so much about that last part. Berger and others have been clear that new legislation will lower and maybe eliminate corporate income taxes and personal income taxes, and that the revenue lost from those sources will come instead from increased state and local sales taxes.

It's far from a new approach to tax reform. In an op-ed Monday for the New York Times, Katherine Newman notes that while the federal government has largely stuck with the principle of progressive taxation, states in the South and West have opted for the regressive route - lowering income taxes and raising fees and sales taxes, as North Carolina is considering.

That approach places a greater burden on the poor, said Newman, dean of the School of Arts and Sciences at Johns Hopkins University and co-author of "Taxing the Poor: Doing Damage to the Truly Disadvantaged."

What kind of damage is done? Newman analyzed the combined burden of sales taxes, plus state and local income taxes on poor households in 49 states, from 1992 to 2008. She found some unsurprising, but troubling, trends:

Southern states have far higher rates of strokes, heart disease and infant mortality than the rest of the country. Students drop out of high school in larger numbers. These outcomes are not just a consequence of a love of fried food or higher poverty levels. Holding all those conditions constant, the poor of the South — and increasingly the West — do worse because their states tax them more heavily. They have less money to buy medication, so their health problems get worse. High sales taxes make meals more expensive, so they shift to cheaper, unhealthy food. If people can’t make ends meet, they may turn to the underground economy or to crime...
The fact is, the more the poor are taxed, the worse off they are.
Newman notes that everyone ends up paying, eventually, as federal programs are forced to swoop in with Medicaid payments, food stamps and disability benefits. She instead recommends exempting necessities like food, medicine and children’s clothing from sales taxes, issuing tax rebates and preserving earned-income credits. Those measures would put more money in the hands of low-income households, and since poor families tend to spend all of what they take in, these protections would stimulate the economy and preserve the job base.

N.C. Republicans are moving the opposite direction. They've floated plans that would quadruple the the sales tax on grocery, and they've ratified a bill that repeals the state earned income tax credit for low and moderate income earners.

Lawmakers argue that lowering corporate and personal income taxes would attract more business to the state and spur job creation, all of which would benefit the poor. And while it's true that the state's corporate rate should be lowered to make us more competitive with our neighbors, that trickle down of goodness to the poor has been hard to find in states that make up for it with higher sales taxes. As for the states in the Midwest and Northeast with more progressive tax systems - they also boast better statistics in categories like premature death and property crime. 

North Carolina has long tried to distance itself from its Southern neighbors - which lag behind the nation in education and health rankings. Do we really want to follow their examples on taxation?

Peter St. Onge


Mark Ranier said...

It would be so cool if the left-wing editorial hacks at the Observer were to actually offer a solution to some of the problems they bring up! OK, St Onge, what do YOU offer to upgrade NC's tax system? Lessening corporate and personal taxes sounds quite business- and consumer-friendly, thus eventually improving quality of life for ALL NC folks. Ah, but the poor, the poor. There will always be the "poor," who already get subsidized goodies galore. Those of us who strove for a good education, got a good job, and pay full taxes will always be vilified by the St. Onge types who wish to squeeze us more.... for "the poor." Bottom line: I think that stimulating the state economy engine to full power will help ALL of us, including those on the low end of the economic ladder.

cooldela1966 said...

What happens when you tax the poor? They turn up at the polls 2 hours early to vote Democratic rather than 1 hour early.

cooldela1966 said...

What happens when you tax the poor? They start noticing what is being done by the various layers of government with their hard earned money

cooldela1966 said...

What happens when you tax the poor? They start complaining about the illegals taking their jobs.

cooldela1966 said...

What happens when you tax the poor? They start figuring out a way to raise themselves out of being poor so that they will have more disposable income.

Wiley Coyote said...

47 million people are now on Food Stamps.

Fraud in the SNAP and NSLP programs is rampant.

Almost 50% of the US pays no Federal taxes, yet the current dead weight occupying the White House wants more taxes to spend on more dependence of the 50% and to grow that base.

What happens when you tax the poor?

You finally get what the empty weight in chief wants: "paying their fair share" for a change.

Andy said...

Sounds like they are embracing some of the features of the "fair tax". Why don't we see how this works before criticizing it?

sumday said...

Yes let me come to your state and make as much untaxed profit as I can- I of course will hire a bunch of min wage workers who will be paying a far higher percent in taxes than they are currently paying now. Once I make my profit I’ll just shift it all to another state or country and not pay NC a thing- but hey I brought you some min wage jobs that the state gets to tax the heck out of while taxing me almost nothing. All of my business transactions (who and where I buy my raw materials from) will be conducted in other states to avoid that pesky high NC sales tax that those min wage workers have to pay- buy it in another state cheaper, ship it here, make high profits and then move all my spending to different states, let those min wage workers pay for it all through their pay check to pay check spending with high tax rates.

sumday said...

at cooldela1966- what happens when you tax the poor? The rich come in and take more advantage of them. So you are poor well I have this job I can pay you for I’ll pay you $2/hr- do you need the money or not? When the poor compete against each other for work and pay the unscrupulous are always there to take advantage of it and often time it is the unscrupulous who create the very conditions for this to occur.

The Observer Editorial Board said...

Mark Ranier:

Sorry you missed this part:

"She instead recommends exempting necessities like food, medicine and children’s clothing from sales taxes, issuing tax rebates and preserving earned-income credits. Those measures would put more money in the hands of low-income households, and since poor families tend to spend all of what they take in, these protections would stimulate the economy and preserve the job base."



Tired Working Mom said...

Ah, Peter - if only that were true. They don't use it to buy food and clothes to support their kids, medicine to preserve their health, housing to maintain the family. Instead they by Nikes, rims for their car, tattoos, etc. to support their egos.

As one of the lower middle class headed toward the poor class due to all this helping the underprivileged - I'd sure like to quit supporting them for a while.

Wiley Coyote said...


Sorry you missed this part over the years:

Prior to the War on Poverty, the United States was getting more prosperous with each passing year and there were dramatic reductions in the level of destitution.

But once the federal government got involved in the mid-1960s, the good news evaporated. Indeed, the poverty rate has basically stagnated for the past 40-plus years, usually hovering around 13 percent depending on economic conditions.


Video explains poverty and why throwing money at the problem hasn't worked for over 40 years.

The Observer Editorial Board said...


Thanks. The video is a little off topic with regards to this post - it's about public assistance, not taxation. Don't know if you're assuming that regressive taxation is only about those in poverty, but Newman's research is also about earners who aren't a part of the programs the video addresses. Are those earners who have jobs negatively impacted by regressive taxes? Her research says yes.



WashuOtaku said...

I'm of the more conservative leaning, but I always thought it would be better to have a lower (or no) sales tax than oppose to doing so with income tax. So it's oddly that I agree with you guys on this on several points, including no food tax (like SC); though I believe they should expand some sale taxes on other services not taxed now.

I believe the problem at going either direction is that it's hard for states like North Carolina to generate another source of income beyond either Sales Tax and Income Tax. Texas has energy and Florida has tourists; North Carolina doesn't really have a big third thing to offset the other two. So we try to compeat against them by being similiar at one aspect, but making up the rest impacting the other source greatly. It's unfortunate, which is why they should go more balance approach than loopsided. Just my two cents.

Mark Ranier said...

Sorry St. Onge, and leftist staff, but I really didn't miss the point. As someone else here posted, the "poor" will always have their iPhones, their $120 sneakers, and their free taxi rides to WalMart. What I'm saying, and the NC House/Senate reps are saying, is that we should improve the NC economy so that ALL of us benefit. Knocking down the upper income types to level the playing field (which doesn't work) to uplift the "poor" is counter-productive. Think jobs and opportunity, man! Without corporate and small business incentives, we ALL suffer.

Seeker said...

Someone said something about the "Fairtax". If you mean that great sounding plan by Neal Boortz and Mike Huckabee, read the fine print.

When you realize what they actually tax -- and they they didn't tell you about it, that they lied their petnuias off, you might be surprised.

You think it's a simple retail sales tax, on people. That's what they tell you, a VERY VERY SIMPLE personal retail sales tax.

UH-- not so much. They have huge, massive, other taxes, hidden in the fine print. PResident Bush Tax Advisory Panel found them -- it's not that hard, just read the fine print carefully, and literally.

When they define "certain wages" are taxed -- pay attention. When they say "we assume all city and states will take necessary measures to raise tax rates" -- pay attention.

When they say we tax all personal CONSUMPTION, all government consumption expenditures -- pay attention. When they say no exceptions whatsoever -- pay attention.

President Bush Tax Advisory Panel eat fine print tricks for breakfast and spit them out for lunch. Fairtax "tax base" trick, and the math, actually show that Fairtax has massive taxes on all city county and states, for all wage, pensions, and benefit "expenditure",

All city county and states, would owe taxes of about 1.5 TRILLION dollars. This is on top of, in addition to, and paid separately from, the personal retail sales tax. South Carolina state legislature, for example, would owe over 900 million dollars as a wage and pension expenditure tax.

Every city in SC. Every county.

Dallas Texas, for example,the city, would owe over 100 million dollars. REmember, all operational expenditures are taxed!!

This is not an opinion, this is what President Bush Tax Advisory Panel uncovered, and Fairtax spokesmen defended it -- claimed they "were just asking" city and states to pay.

That's right -- just asking. Hiding goofy stuff in the fine print is "just asking". That's how they "ask" city and states, for 1.5 trillion, they write a few tricky definitions, assumptions, and footnotes.

Be careful of guys like that.

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