State Power

Why it's Easy to Tax the Poor

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I don't care how well Florida's doing. I still think we should give it back to the Seminoles.

President Obama says his proposed "Buffett Rule" (tax-free corporate jets Tuesdays and Saturdays) is not a gimmick. That's a presidential way of saying that the Buffett Rule is a total gimmick

But here's some evidence of why taxing the rich – whatever its merits in terms of fairly and justly ensuring social justice and economic fairness in ways that are both socially fair and economically just – is not going to achieve the goal of raising sufficient revenues to for the American megastate. 

Above is the Tax Foundation's 2011 map of how much income states lose as a result of interstate migration. It tracks very closely with rates of taxation. The theory at work here is that if you tax income severely enough, high earners will find ways to conceal their income or take it elsewhere. The only real surprise is that California is only the country's second-biggest loser and Texas only the third-biggest gainer. 

Today, 24/7 Wall St. (whose near-daily this-and-that lists are always fascinating) has a study of the top 10 states that tax poor people the hardest. Methodology: 

24/7 Wall St. identified 10 states that tax two-parent families of four living at the poverty line at the highest rate, based on CBPP's report, "The Impact of State Income Taxes on Low-Income Families in 2011." All of these states also tax families with incomes that place them below the poverty line.

Using this measure, the ten meanies in ascending order of non-progressivity are: 

10. West Virginia
9. Ohio
8. Indiana
7. Montana
6. Iowa
5. Georgia
4. Oregon
3. Hawaii
2. Illinois
1. Alabama

The interesting thing is that this list does not correlate at all with the Tax Foundation's map of lost income. Five of the states above are gainers, five are losers. This is a politically toxic but true fact: Progressive taxation makes a state poorer than regressive taxation. 

Whenever I make the point that broadening the tax base is the only way you can actually raise revenues, I get a bunch of responses about how I'm a pennyboy for the rich, along with plenty of wildly inaccurate claims about how much of the national income* the 1 Percent earn. (It's about 20 percent, according to "Gurus of Inequality" Piketty and Saez.) Just to be clear, I am not arguing for broadening the base. I am not arguing for raising taxes on the poor, the rich, the middle class, the rentiers, the kulaks, or anybody else. I don't want anybody paying any income tax at all. I'm just saying that if your goal is to raise revenue, broadening the base is the only way to do it. 

* Corrected. Thanks to commenter #.

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  1. Typical lazytarian bias. You don’t even think about poor people voting with their feet too, moving away from regressive states to progressive ones because it’s in their interest.

    1. So your only point is that poor people make progressive states even poorer?

    2. Typical lazytarian bias. You don’t even think about poor people voting with their feet too, moving away from regressive states to progressive ones because it’s in their interest.

      Yeah because moving from state to state is so cheap and easy that someone living paycheck to paycheck should have no problem quitting their job, moving their family and possessions hundreds of miles, and finding gainful employment elsewhere.

      1. He was joking, Captain Serious.

        1. No. I think he is really that stupid.

          1. Poor mexicans overcome the transaction cost of moving all the time.

            Or, at least, they used to. Apparently they stopped doing that.

            1. The transaction cost only makes sense if there is a job involved. Or you are a hipster moving to one of hipster enclaves and have mommy and daddy to pay for it.

            2. Robc, it’s a bit different. Immigrants coming here don’t always bring their families, or at least not at the same time they cross the border. On the other hand, if you’re a citizen trying to work within the system, you have to put a lot more care into where you move and how you do it.

              My family had problems moving out of Indianapolis to another city. School, a roof over your head, these things matter a lot more to a native family trying to move than they do to some guy who snuck over the border to do agricultural work.

              1. Not that a roof over their heads isn’t a concern to immigrants, but I assume that’s easier to do when you’re not moving your entirely family.

                1. There is this crazy model where the breadwinner moves first and sends money back home until he can afford to move the whole family (or move back).

                  Im not sure if this has ever been tried though.

                  1. Of course, because if you can barely afford to pay for one residence with your family, then it should be no problem for you to pay for a second residence for yourself in another state while at the same time providing enough money for both your family and yourself to eat on a regular basis.

                    1. And, yet, it works for immigrants from latin america.

                    2. When US citizens are in the same situations as Latin American immigrants, I’ll concede you have a point.

                    3. Sure, because all those immigrants need to do is send $25 a week back home and his family is taken care of.

                      Wheras for a poor native family moving and leaving your family behind means living in a homeless shelter if you’re lucky.

                      The situations are by no means analogous

          2. That had to be a joke.

            1. It’s one of Dan T’s sockpuppets.

            2. Obviously, if you say, so then it must be.

              1. Don’t you dare KULTUR WAR him.

    3. Huh? Typical not reading the entire post. He specifically addresses this in the post, noting that strangely the regressive states don’t seem to be losing population, despite there presumably being more poor people.

      1. Or they lose the same number of poor as rich move in. Which would be a much lower percentage of the poor moving.

    4. Well that is a win win then, is it not ? You get the poor people and others get the rich ones, both sides seem happy with that.

  2. “wealth the 1 Percent earn”

    Tim, please don’t add to the confusion. Wealth and income are not the same. Usually people say you earn income? Is this stat income of cumulative savings (wealth)?

    1. You are correct, sir or madame. Thanks.

  3. If your state is too small to have its initials written within its boundaries on the map it should be annexed by the neighboring large state.

    1. Fuck you very much.

      Sincerely,
      NH

      1. So the capital of Maine would be…Boston?

        1. Boston is already the capital of New England, you dumb hick.

          1. I don’t keep up on the goings-on of incest-addled mushy-minded fallen WASPs in the Northeast. That would be like watching the Gilmore Girls unironically.

            1. So you’re saying you watch Gilmore Girls. Between that and Downton Abbey, when do you have time to stop crying and eating tubs of ice cream?

            2. Now the Northeast is the home of incest? Whatever happened to the South?

              1. Between that and Downton Abbey, when do you have time to stop crying and eating tubs of ice cream?

                When Friday Night Lights comes on.

                Now the Northeast is the home of incest?

                You don’t think New Englanders all look like ugly basset hounds by accident, do you?

              2. Whatever happened to the South?

                Science has shown that 1st cousins arent really incest.

                1. Most of the Northeast is right out of that Dish Network “The Hopper” commercial.

                  1. And by “most” John means anything with 30 miles of Logan Airport.

                    1. *within

        2. It was once before.

  4. They should enact Mayor Quimby’s Leaving Town Tax.

  5. Ive said what Tim has said. If the Feds want to raise more tax revenue, get rid of the Bush 10% bracket and return all of those people to the 15% backet.

    Guess which one of the Bush cuts the Obama administration wants to keep?

  6. Before you can broaden the base you must distribute wealth and income more broadly. Otherwise you really are burdening people with taxes.

    But you’re never ever going to support any downward redistribution, no matter what form it takes. “Broaden the base” lacking the crucial first step is just reverse Robin Hood. One wonders how much wealth concentration at the top has to occur before it starts to look like a rigged system to libertarians. But for some reason it’s only rigged in favor of the poor (who need to be taxed more to balance the budget), never the rich, who, by what must be monumental stupidity, are mere victims of the government they own.

    1. But you’re never ever going to support any downward redistribution, no matter what form it takes.

      Bullshit. Reason, and libertarians in general, support abolishing agricultural subsidies, the Export-Import Bank, subsidies for professional team owners and their stadiums, and host of other things.

      Eliminating subsidies for the rich is a form of “downward redistribution.” (Considering the average income of an NPR listener, abolishing support for that would also be “downward redistribution.”)

      What you’ll find is that elected Democrats in general never support any downward redistribution, if it takes the form of the government spending less money, even on the rich.

      1. Yes you support abolishing a few obviously unlibertarian policies because otherwise you’d be ridiculously hypocritical. But I don’t think meaningful downward redistribution (i.e., a strong middle class) can happen without deliberate government action, i.e., progressive taxation and social programs. If there’s another way I’d love to hear it, but as far as evidence the 20th century tends to support my position.

          1. That’s what Tom Cruise says about anything anti-Scientology. Or mouth-breathing idiots say about anything un-biblical. Of course you are identifying yourself as a member of a cult right in your handle, so it’s no surprise you’d behave like one.

            1. Or their handle could be a reference to Prince Randian.

              I’m fairly certain there have been stranger references around here.

              1. Aw T o n y, you’re just as endearing as ACTUAL Tony. Unfortunately, the role of Butt Monkey is already taken. You’ll have to settle for Dunce.

    2. You didn’t read the entire article, did you? He specifically says he doesn’t support broadening the tax base.

      1. I read it. I get that he supports a quasi-anarchic utopia that would never happen so long as this country remains a democracy. But don’t let that stop him from defending Republican talking points when they’re being maligned.

        1. Mary, do you support a botox tax?

      2. Dude…just ignore it. Just walk away.

        1. Difficult to do…Tony is like having an itchy anus. You scratch it, and then want to sniff your finger, but you know you shouldn’t do this because the results are predictable…but you do it anyway.

          Yes, Tony is a stinky, itchy asshole. It comes from a lack of bathing. Bathing is for those evil 1%ers, at least that’s what passes for a liberal arts education these days.

          Aside from that, his arguements are predictable and easy to deflect – when he argues honestly. Which he never does. Ad hominem attacks, strawmen, and an uncanny ability to completely change the subject when suddenly on the defensive make engaging with Tony pointless.

          Unless you enjoy sniffing your finger after scratching your ass…

      3. darius, Tony doesn’t engage ideas. He’ll brush right past anything intelligent or substantive you say and just keep hammering home the same bullshit. He’s a troll; leave it be.

    3. Re: Tiny,

      Before you can broaden the base you must distribute wealth and income more broadly.

      “Before you can broaden the cake you must spread the batter on a greater surface and call it a crepe.”

      Same shit, in more ways than one.

      One wonders how much wealth concentration at the top has to occur before it starts to look like a rigged system to libertarians.

      It IS a rigged system, you dolt – it’s called the Federal Reserve System. And libertarians already know about it. The point is that your solution is idiotic.

    4. And how praytell do you come up with the money to redistribute downwards without first increasing revenue, something this post establishes cannot easily be done without broadening the base?

  7. Chart has a typo.

    MS should be #27, not #29. OK is #29, MS is higher than WV at #28 and lower than KY at #26.

    1. Cant the tax foundation afford an intern who can make sure every number exists exactly once?

      1. I think this is one of those lessons in government math, like
        “$1 saved = $2 spent.”

    2. Woohoo!!! Take that, West Virginia!

  8. The thing about Piketty and Saez is that they tend to publish lots of results that are before government transfers only. That’s interesting, but not exactly a guide for how to change public policy.

  9. Just quickly looking at that map, Im pretty sure I can show a strong inverse correlation between income migration and craft beer production.

    The big loser states (with some exceptions, CO, OR, WA primarily) are the big craft beer production states.

  10. The only real surprise is that California is only the country’s second-biggest loser…

    California has such a great climate and setting and — because of climate and setting and in spite of government — concentration of talent that the state knows it can fleece people more liberally without losing them.

    2. Illinois

    And this struck me when I lived there and earned little: Federal tax 0%. State tax 3%, from those earning the miniscule standard deduction all the way to millionaires.

    1. It’s even better now Mike. The IL flat tax rate was “temporarily” increased to 4.5% last year.

    2. Another Illinoisan here. I’ve always liked the simplicity of the IL-1040. Yes it is a flat 4.5% for everyone.

      1. Don’t expect it to last in the Spain of the US. (Michigan is the Greece.) The state is broke and a progressive tax system is just the bait it will take to get the shiftless vote.

  11. Regarding the alt-text, Tim – do you mean the Indians, or alumni from Florida State? Because I’m okay with one of those.

  12. There are legitimate libertarian arguments for progressive tax rates as being preferable. If we start taxing the very poor at a flat rate equal to the rich, we quickly start dipping into money for groceries, medicine, etc. The political consequences of taxes cutting into the poor’s nondiscretionary income will be more more demand from the poor to get something back for their money and more welfare statism.

    The list of states which tax the poor either have some of the biggest welfare states (Illinois, Hawaii, Oregon), or are some of the poorest states in the nation (Alabama, W. Virginia, Georgia and Montana all in the bottom 15). Of course, the income tax correlation may not be extremely strong, as states like Texas are extremely poor, while NH has the lowest poverty rate in the country – FL and CO in the middle of the pack.

    1. Dopey argument.

      A flat tax with a reasonable standard deduction would be fine. The problem is the standard deduction at the federal and state level is so ridiculously small it pretty much proves how much the politicians loathe the people that elected them.

      1. You realize a “flat tax with a big standard deduction” is still technically progressive taxation, right? The only difference will be an increased burden on the lower middle class.

        Income*Current Tax Bracket – Current Std Single Person deduct:
        30000*.15 = $4500-5930 = -1430 = 0%
        50000*.15 = $7500-5930 = $1570 = 3%
        75000*.25 = $18750?5950 = $12800 = 17%
        150000*.28 = $42000-5930 = $36070 = 24%

        Income * Flat Rate – Increased Std Deduct:
        30000*0.25 = $7500?7500 = 0 = 0%
        50000*0.25 = $12500?7500 = $5000 = 10%
        75000*0.25 = $18750?7500 = $11250 = 15%
        150000*0.25 = $37500?7500 = $37500 = 25%

    2. I’m with Invisible Finger.

      Set the deduction to exclude maybe 40% of the households — certainly well above the poverty line — and then flat tax the rest.

      It is stupid to tax people and give it back to them. Social Security stupid. Medicare stupid. Really, truly, that stupid.

  13. Federal income taxes apply no matter where you go. Americans can’t be tax expats like Europeans can without giving up their citizenship. Some would, but probably not too many. The migration argument doesn’t fly at the federal level.

  14. Come and take it

  15. I saw a friend’s post asking why poor people care so much about taxation when the government is only planning on taxing the top 1%. I replied that because of Obama’s ending of the Bush tax cuts my rate went from 11% to 15%, and that I only made 21K last year…I brought up the fact that during FDR’s time taxing just the rich wasn’t enough to provide goodies and that he had to increase taxes on those making 50K…Today taxing just the rich isn’t going to get us out of our current fiscal mess…

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