Why bail out the rich when everyone else is paying a bigger share?
The debate about state income tax cuts has missed one crucial point. Already people with middle and lower incomes pay a higher portion of income than people with the greatest incomes. Look at total state and local taxes — that is income tax, sales tax, property taxes and all.
And consider:
A low income person has to spend all they have, so most of their income incurs sales tax. A high income person can put much of it into investments and only spend the rest, so a lot of their income escapes sales tax. So, middle and lower incomes pay a bigger percentage of their income into sales tax.
It’s also property taxes (because lower incomes are stretched to the hilt to own a home while for the top it’s a smaller portion of their income). It’s also taxes on things like gasoline and line items on your phone, utility and other bills. All of those expenses represent a bigger portion of a middle or low income earner’s resources than that of a high income earner.
The state income tax, which has been at a higher rate on higher earners, offsets that burden partially, but only partially.
The Institute on Taxation and Economic Policy, using government data, in its most recent analysis of Arizona in 2018, found that a person with low wages pays 13% of their income toward taxes. A person in the top 1 percent pays less than 6%.
Upside down. Doubly upside down. The lowest incomes paying twice the portion of their income in taxes as people at the top. Even middle income earners pay more than 1 1⁄2 times what those at the top do.
Now Republicans are cutting the top income tax rate to 1%, even while the rest of us will pay somewhere around 2.5%. So it goes from being somewhat progressive (from 2.59% up to 4.5%) to being another upside down tax (from 2.5% downward, yes downward, to 1%).
The proposal has been tweaked as it moved through the Legislature with rates changing a little and the rates of some cuts reduced over time, but the key feature — a rate for the top that will be lower than for others — holds firm.
This increase in inequity is affirmed by David Cay Johnston, who won a Pulitzer Prize for revealing loopholes and hidden features in the U.S. tax code that prompted two presidents to change their tax policies and explained our tax and spending systems in plain English in his bestsellers “Perfectly Legal” and “Free Lunch.”
Yes, there is a surcharge on individual income above $250,000 to help pay for education but the reason voters approved that was because the political leadership thwarted every attempt to fund education as the public has sought.
If state lawmakers didn’t want a voter-imposed surcharge, they should have taken care of education long before.
Plus, cities have already said this would hurt them because their portion of income tax will go down too. The Legislature’s fix was to raise the portion of shared tax revenue cities got. It simply means that legislators will be directing more of the taxes taken disproportionately from middle and lower income earners to help municipalities, just so they can give this gift to the top.
And when the reduced state income isn’t enough to meet needs? An extra sales tax will almost certainly be proposed. Recent history demonstrates this, although hardly anyone notices that it pushes the tax burden yet further onto the backs of the middle and bottom.
As Johnston noted in our correspondence about making tax law complicated, “(This) is a strategy that ensures that the middle class and poor don’t realize that burdens are being shifted onto them.”
The Arizona Legislature and Ducey are banking on the bulk of the state — many of whom already are unaware how much of a sucker’s deal they’re enduring — will be oblivious to notice they have made it even worse.
If there’s a chance for a referendum to undo this, it should happen.