Making the Case for Progressive Tax Policy

Progressives have emphasized some key messaging and research in making the case for new revenues.

Spending on Programs that Assist Low and Middle Income Familes is Effective Recovery Policy: 

During an economic downturn, progressive revenue generation is far preferable to deep cuts, as it allows states to provide funding for essential programs, pump money into the economy, and protect working families. A budget that relies too heavily on cuts will not only force layoffs of state employees, but will also diminish crucial services and reduce spending in the private sector.

By assisting working families, who will more readily spend their funds on basic needs, the government is boosting short-run demand and fostering market activity.  A report by the Economic Opportunity Institute details:

Every dollar of state spending generates $1.41 of economic activity... Cutting state spending means fewer purchases from suppliers, reduced contracts with service providers, less money from public and private employee paychecks circulating through local businesses - and of course, fewer public services."  

On the other hand, cuts are extremely damaging to the economy. Further reductions will diminish state workforces, decrease spending on crucial programs, curb economic growth, and exacerbate the effects of the downturn. The Economic Policy Institute details the danger of state budget cuts as they impact employment, economic activity, and investment in both the public and private sector.

Taxes Do Not Undermine Economic Growth: 

As PSN has highlighted in previous Dispatches, research consistently shows that there is no link between tax increases and job loss. Moreover, states with higher personal income tax rates experienced significant job growth in the past decade, have more innovative new economy industries as a result of crucial investments in long-term growth industries, and sustain higher income growth.

The Overall Tax Burden Is Low: 

Despite intense rhetoric from the right, the Bureau of Economic Analysis reports that "federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950."  In fact, the average rate has decreased 26 percent since the national recession began in late 2007. The Center on Budget and Policy Priorities (CBPP) reported similar results in a recent study, finding that as a result of tax cuts included in the American Recovery and Reinvestment Act (ARRA) and other tax changes at the federal level, middle class families are paying the lowest proportion of federal taxes as a percent of income in decades.

But the Rich Pay Far Less of Their Income in State Taxes than Working and Middle Class Families:

The richest taxpayers have not been contributing their fair share for years. When you factor in sales and excise, property, and income taxes, states tax working families far more heavily than richer individuals, contrary to common notions about taxation. The Institute for Taxation and Economic Policy (ITEP) finds that on average, the lowest 20 percent of earners pay about 11 percent of their income in state and local taxes while the top 1 percent pay a little over 6 percent of their income to state and local governments.

Taxes on the Wealthy Are the Most Effective Response to the Recession: 

Given that the wealthy are already paying a lower percentage of their income in state taxes, it makes both economic and moral sense to raise revenues by creating a more equitable burden of taxation between wealthier and lower-income state residents. Raising income taxes on high-income individuals is the most direct way to accomplish this.

Progressive Taxes Don't Cause Out-Migration of Wealthy Residents: 

And to respond to a favorite talking point of the right-wing, states that have increased the top rate in recent years have not experienced any significant out-migration of wealthy residents.  For example, after the New York temporarily raised income taxes on the wealthy from 2003 to 2005, the number of high income tax returns grew 30 percent, from 250,000 to 325,000 in the state. Similar trends occurred in California and New Jersey.

TAX NEWS - may 2010

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