The Impact of State Income Taxes on Low-Income Families in 2011

Source: Phil Oliff, Chris Mai, and Nicholas Johnson, Center on Budget and Policy Priorities April 4, 2012

From the summary:
The successful bipartisan effort over the last two decades to reduce state income taxes on working-poor families has stalled and is in danger of reversing. No new states exempted working-poor families of four from income taxes in 2011, and in almost all of the 15 states where such families still pay income taxes, they saw their income taxes increase.

Taxing the incomes of working-poor families runs counter to decades of efforts by policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well. Since 1991, the number of states with income taxes on working-poor families of four has fallen from 24 to 15, and even in most of the remaining 15 states, the income tax liabilities of these families have declined significantly since the 1990s. Poor families paid income tax bills of several hundred dollars in 2011 in eight states. A two-parent family of four with annual income at the poverty line (which is $23,018 for a family of that size) owed $548 in Alabama, $509 in Illinois, $331 in Hawaii, $274 in Oregon, and $273 in Georgia. Other states levying taxes of more than $200 on families with poverty-level incomes were Indiana, Iowa, and Montana. Such amounts can make a big difference to a family struggling to escape poverty.

Some states went further and levied income tax on working families in severe poverty. Five states — Alabama, Georgia, Illinois, Montana, and Ohio — taxed the income of two-parent families of four earning less than three-quarters of the poverty line, or $17,264. Four states — Alabama, Georgia, Illinois, and Montana — taxed the income of one-parent families of three earning less than three-quarters of the poverty line, or $13,442.

Another 24 states required families of four with income just above the poverty line to pay income tax in 2011. There is strong evidence that even income modestly above the poverty line is often insufficient to meet families’ basic needs, and so there is a strong case to be made for exempting near-poor families as well.

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