NCPA - National Center for Policy Analysis


March 29, 2007

Poor families in many states face substantial state income tax liability for the 2006 tax year, making it more difficult to escape poverty, says Jason Levitis, policy analyst at the Center on Budget and Policy Priorities.


  • A two-parent family of four in Alabama with income at the poverty line owes $573 in income tax, while such a family in Hawaii owes $546, in Arkansas $427, and in West Virginia $406. 
  • Other states levying tax of more than $200 on families with poverty-level incomes include Indiana, Iowa, Michigan, Montana, New Jersey and Oregon. 
  • Four states increased taxes on poor families by 25 percent or more by failing to protect them from taxation -- including standard deductions, personal exemptions and low-income credits -- which were not increased to keep up with inflation.

However, the outlook for the future is somewhat better, says Levitis:

  • Between 2007 and 2010, Alabama, Arkansas, Hawaii, Michigan, Oklahoma, Oregon and West Virginia each will improve their income tax treatment of the poor. 
  • In Arkansas, Michigan, Oklahoma and West Virginia, the changes will wipe out or dramatically reduce tax liability that now costs poor families hundreds of dollars. 
  • Overall, the number of states taxing poor families of four could decline from 19 to 16; quite a few other states are currently considering similar measures.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient, says Levitis.  In other words, relieving state income taxes on poor families can make a meaningful contribution toward "making work pay."

Source: Jason Levitis, "The Impact Of State Income Taxes On Low-Income Families In 2006," Center on Budget and Policy Priorities, March 27, 2007.

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