May 3, 2017: This story has been corrected.
A group of conservative think tanks wants the nation’s tax system to look more like North Carolina’s. But so far, for the working poor, that hasn’t been a great deal.
Experts from think tanks heavily subsidized by anti-tax, free-market groups such as the Charles Koch Foundation have descended on state capitals armed with scholarly research arguing that tax cuts for the well-to-do lead to economic growth.
North Carolina has been one of the laboratories for this approach. In the Tar Heel State, wealthy families had their state taxes lowered while poor folks saw their tax burden increased or go unchanged. In 2013, the state legislature cut state income taxes, which are progressive — meaning the rich pay a higher rate than the poor — and expanded what was subject to the state sales tax, which is regressive, meaning the poor spend a disproportionate amount of their income on the tax.
In Washington, D.C., the Trump administration and Congressional Republicans have been considering a similar approach — lower federal income-tax brackets and a tax on imports — that some tax experts say would have comparable outcomes. Some of the same conservative groups that convinced states to change their tax systems have advised the Trump administration on economic and tax policy. Trump’s initial proposal, which he is expected to discuss Wednesday, may not include a border tax, but such a levy continues to be a key provision of what Congressional GOP members are pushing.
The effects on lower-income families are already playing out in a handful of states. Since 2010, North Carolina, Mississippi, Kansas, Michigan, Maine, Oklahoma and others have either reduced income-tax rates during some years, passed laws to do so in the future, or have put their states on a path that could remove income taxes. By 2022 Mississippi will cut taxes for the first $5,000 earned for all taxpayers, but will leave intact a flat tax for higher incomes. Maine dropped its top rate from 8.5 percent to 7.95 percent in 2011 and to 7.15 percent in 2015. (It increased it to 10.15 percent just this year for those earning $200,000 or more.) At the same time, many have increased sales and user taxes, such as those charged on such every-day necessities as gasoline and soft drinks, which generally hit the poor harder. Half a dozen other states — Maryland, Illinois and Virginia among them — tried to do the same in this year’s legislative sessions.
If sales taxes “keep going up, I'm going to end up in the shelter with the ladies where I work,” said Juanita Maestos, who works as a counselor at a homeless service center in Seattle and has watched the state Legislature fail numerous times to institute an income-tax system to reduce Washington’s nearly 9 percent sales tax. “You keep doing stuff like this and nobody is going to win.”