Taxing Progressively

A Tiny Tax, A Really Big Return

America’s states, says a new Center on Budget and Policy Priorities report, have a remarkably easy-to-administer alternative that can help avoid devastating budget cuts without putting any real pain on anyone. That alternative: tax the rich!

By Sam Pizzigati

The first round of state legislative sessions since the U.S. economy started shifting into meltdown mode last spring is now wrapping up. Most states have reacted predictably. They’ve cut back on funding for the public services that low- and middle-income people, in these hard times, so desperately need.

Not every state has so far gone this budget-slashing route. But virtually every state that hasn’t yet taken the cutback plunge is actively considering it.

For all these states, researchers at the Center for Budget and Policy Priorities have a straightforward message: stop! States today, these researchers argue in this well-documented new white paper, have a remarkably easy-to-administer alternative that can help state officials avoid devastating cuts without putting any real pain on anyone.

That alternative: tax the rich. Even just a little.

In fact, the Center’s Elizabeth McNichol, Andrew Nicholas, and Jon Shure explain in Raising State Income Taxes on High-Income Taxpayers, placing just an additional 1 percent tax on income over $500,000 — in the 41 states that currently have a state income tax — would raise $8 billion for needed state services.

The Center paper thoughtfully offers up a state-by-state breakdown of how much revenue a tiny 1 percent increase would raise — and how few taxpayers would see higher tax bills.

In Maryland, for instance, adding a 1 percent tax on income over $500,000 would raise $207.4 million — fully enough to offset the $206.5 million in cuts to Medicaid, public colleges, and local governments in the latest state budget. This 1 percent tax on income over $500,000 would impact a mere 0.6 percent of Maryland’s taxpayers.

How can such a tiny tax increase raise such significant sums? Simple. The rich are sitting on a ton of assets. America’s wealth, Center researchers note, “has become concentrated among the nation’s richest households to an extent not seen since the late 1920s.”

Across-the-board 1 percent state tax hikes on income over $500,000, the Center adds, have no real downside. Such tax hikes would be fair, quick to put in place, and much more economic recovery-friendly than budget cutbacks that reduce the spending money in average family pockets and depress, in the process, overall economic demand.

The obvious question: Why aren’t more states actively considering tax hikes, even if just tiny ones, on their wealthiest?

Chalk that reluctance off to concentrated wealth. In a top-heavy society, immense concentrations of private wealth invariably translate into immense concentrations of political power. In deeply unequal societies, rich people have the clout to determine which issues get political traction and which don’t.

The Greeks gave us a word for a political system where the wealthy exercise this sort of clout: plutocracy.

The rich, to be sure, don’t always get their way in a plutocratic society. Serious and sustained citizen pressure can indeed dent deep-pocket armor. In New York, earlier this month, we saw the what this pressure can do when the state’s governor, after categorically ruling out a tax hike on his state’s wealthiest, did an about-face and agreed to a modest hike on New York’s top tax rate.

But New York’s wealthiest — and the wealthiest in every other state — are still paying their total state and federal taxes at less than half the rate their predecessors paid back in the 1950s and 1960s. The citizen pressure we need to see has clearly only just begun.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

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