BOSTON — ADAM SMITH, the first apostle of capitalism, wrote in 1776 that the citizens "of every state ought to contribute toward the support of government as nearly as possible in proportion to their respective abilities." To Robert McIntyre, director of Citizens for Tax Justice (CTJ), that means that the share of income paid out in taxes should rise as income rises. But such "progressivity" in taxes is not the case in most states of the United States, he says.
A new study by his public interest group finds that, on average, middle- and low-income American families are paying 1.3 and 1.8 times as high a share of their incomes, respectively, in state income, property, sales, and excise taxes as the most affluent Americans.
That finding - that most states are "soaking the poor, sparing the rich" - has been long suspected. But CTJ has spelled out the tax burden in detail for various income levels in each of the states and the District of Columbia.
Moreover, the information has been customized for each state in press releases to newspapers and other media. For example, the headline for the news release in this state reads: "Massachusetts Taxes Poor at 1.5 Times the Rate of Affluent." The result has been greater publicity, and, CJT would hope, greater impact on state legislatures at a time when new taxes are being considered.
Since 1985, many states have relied on regressive taxes - taxing the rich at a lower rate than those with more modest incomes - to meet fiscal challenges, the study notes. Seven states - Connecticut, South Dakota, West Virginia, Alaska, Nevada, Tennessee, and Washington - raised taxes as a share of income on 95 percent of their families, "even as they cut taxes on the top 1 percent of their citizens." Forty-four states and the District of Columbia tax the very rich at lower rates than they tax the poor.
"Of course, we need taxes to pay for public services," says Mr. McIntyre, who used to work for public interest advocate Ralph Nader. "But by letting the rich off easy, most states have put too much of the tax burden on those who can least afford to pay. The biggest problem is over-reliance on regressive sales and excise taxes rather than on progressive, ability-to-pay income taxes."
Because federal taxes remain modestly progressive, the combination of taxes at all levels of government (federal, state, local) is approximately equal as a proportion of income for all income groups except for the poor, according to research by the late economist Joseph Pechman of the Brookings Institution. The poor pay 16.4 percent of their income in taxes versus 26.8 percent for the wealthiest 10 percent.
McIntyre holds that state legislatures have accepted regressive tax systems because either (1) their decisions were made behind closed doors, or (2) the legislators did not understand what they had wrought, or (3) they feared tax competition that would lure businessmen from other states.
But he says that states supporting excellent school systems to provide an educated labor force along with good highways and other facilities have a better strategy for luring business than simply setting low taxes.
Only two states, Vermont and Delaware, have slightly progressive tax structures overall, the CTJ study found.