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Taxing the Poor
State Income Tax Policies Make a Big Difference to Working Families

Authors: Seth Hartig, Curtis Skinner, and Mercedes Ekono
Publication Date: November 2014

This is an excerpt from the full report.

In his 2013 State of the Union address, President Obama called for policy change to ensure that “no one who works full-time should have to live in poverty.” However, a new NCCP analysis of state tax policy finds that a significant number of states continue to push the working poor deeper into poverty by imposing income tax liabilities on poverty-level earnings – liabilities that in some states reach hundreds of dollars. With Census-determined poverty thresholds set well below what families realistically need to make ends meet, any tax liability is very burdensome for poor families. Recognizing this, a growing number of states are following the federal government’s lead by: (1) adopting tax codes that set the threshold for incurring any income tax liability at a level well above the federal poverty threshold, and (2) using refundable income tax credits – primarily state Earned Income Tax Credits (EITCs) – to provide a financial boost to low-income families. In contrast to states that tax the poor, these states provide income supplements to poor families that can reach almost two thousand dollars. Given the broad bipartisan support for the EITC and the credit’s proven effectiveness in strengthening the economic security of working families, state governments should adopt or expand EITCs and other tax credits for low-income families and revise tax codes to eliminate the possibility that low-income families incur any state income tax liability.