State’s poor paying 3rd-costliest taxes, research group says
Posted on Saturday, February 25, 2006
A two-parent family of four living at the poverty line paid $ 406 in Arkansas state income tax in 2005, the third-highest amount among the 41 states that levy income taxes, according to a report issued by a Washington research group.
The report by the liberal Center on Budget and Policy Priorities urges states to grant income tax exemption to families with incomes below the federal poverty line. The federal government started doing that in the 1980 s "because both parties agree on the importance of helping families work their way out of poverty,"said Jason Levitis, a co-author of the report.
"But while many states have improved their income-tax treatment of low-income families since the early 1990 s, a number of states still tax poor families deeper into poverty,"he said.
The report listed the amount required by states that charge income taxes of two-parent families of four who earned $ 19, 961 in 2005. The $ 538 required by Alabama topped the list, followed by Hawaii's $ 470.
The center has issued a similar report annually since 1994, said Nick Johnson, director of its state fiscal project.
The amount levied by Arkansas on a family of four living at or below the poverty line grew from $ 214 in 1994 to $ 406 in 2005, according to the report.
Under the state's tax rules, some low-income individuals are not required to file a state income tax return. For example, in 2005, single individuals under the age of 65 who had less than $ 7, 800 in income were not required to file income taxes. For married couples filing a joint return, those who earned less than $ 15, 500 in 2005 were not required to file a return, according to the Department of Finance and Administration.
Individuals seeking to claim a state income tax refund on taxes withheld from their paychecks, however, must file a return.
The state does not have a current estimate of how much it would cost to exempt individuals living below the poverty line from state income tax. In 2003, the Department of Finance and Administration estimated that excluding those individuals would deprive the state of roughly $ 12. 7 million.
That estimate was based on using the then-current federal poverty line which, for a family of four, was an income of $ 18, 400 a year. That estimate was also based on a limited number of income tax exemptions, fewer than are typically offered. Officials at the department said expanding the allowable exemptions would increase the cost to the state beyond $ 12. 7 million.
David Foster, the state income tax administrator, said about 520, 000 of the 1. 1 million income tax returns processed every year by the state report income of less than $ 25, 000.
That means exempting individuals who are at or below the federal poverty line would cut into a large part of the state's tax base, Foster said.
Tim Leathers, the state's chief revenue officer, said all taxes must be looked at to accurately compare the tax burdens of different states.
The Arkansas Department of Finance and Administration provided U. S. Census Bureau figures which report Arkansas ranked 27 th in terms of state and local taxes as a percentage of personal income in fiscal 2002. The state was 48 th in property taxes as a percentage of personal income, fifth in sales taxes and 24 th in income taxes.
Johnson said the center's report focused on income taxes in part because that information is easier to get.
"You can't really target low-income families through the sales tax because of the way the sales tax is administered,"Johnson said.
He added that lowering the income tax for families at or below the poverty line has not been a "budget busting"proposal for states that have lowered those taxes in the past.
Greg Kaza, executive director of the Arkansas Policy Foundation, a conservative research organization in Little Rock, said the state's income tax burden is "pretty high."
He said the state's top income tax bracket applies to lower income levels than in other states, affecting middle and lower-middle class families.
He added that the state also places a sales tax on groceries, a tax Kaza said policymakers should consider removing.
"Everybody has to eat,"Kaza said.
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