The Top 5 (Okay, 6) State Tax Charts

April 14, 2014 at 1:51 pm

As we approach Tax Day, here are six charts focusing on state taxes.

More than half of state tax dollars go to fund education (K-12 and higher education) and health care, as the chart below shows.  State tax dollars also fund other critical services such as transportation, corrections, public assistance, care for residents with disabilities, police, state parks, and general aid to local governments.

State revenue losses from the Great Recession were both deeper and longer lasting than in previous recessions, as the chart below shows.  Not until the end of 2013 did revenues finally return to pre-recession (2007) levels, after adjusting for inflation.  But, the steady revenue increases of recent years offer states an opportunity to reinvest in education and other services that sustained unprecedented cuts during the recession.

While revenues have slowly recovered in most states, Kansas has moved in the opposite direction, as the chart below shows.  Kansas slashed income taxes, especially for businesses and wealthy Kansans, even as needs — like the number of K-12 students — have grown.  Revenues fell by more than 9 percent in Kansas in 2013.  Meanwhile, there is no evidence that the tax cuts have boosted the Kansas economy.

Five of the seven states that have made the deepest cuts to K-12 education since the beginning of the recession have also enacted major income tax cuts, as the chart below shows.  These tax cuts eliminated revenue that could have helped states reverse the deep funding cuts from the recession and invest in promising education reforms.

As the chart below shows, low-income families pay significantly more of their income in state and local taxes than very wealthy families.  State and local taxes push many families into — or deeper into — poverty.

A state Earned Income Tax Credit (EITC) is one powerful tool to prevent state and local taxes from pushing low-income working families deeper into poverty.  Twenty-five states and Washington, DC, have their own EITCs, as the map below shows.  A state credit builds on the federal EITC’s proven effectiveness in helping low-income working families make ends meet.  States looking to encourage work and reduce poverty, especially among children (the federal EITC lifts more children out of poverty than any other program), should considering enacting or expanding an EITC.

Community Eligibility Is Expanding Nationwide

April 14, 2014 at 10:58 am

With nearly 16 million children living in households that have trouble affording nutritious food at some point during the year, the time is right for thousands of schools serving high-poverty neighborhoods to adopt community eligibility, a powerful option to alleviate childhood hunger that will soon be available nationwide.  The Community Eligibility Provision allows high-poverty schools to eliminate school meal applications and offer breakfast and lunch to all of their students at no charge.

Four thousand high-poverty schools across 11 states have already implemented community eligibility, and the White House estimates that 18,000 additional schools will be eligible to adopt the provision for the coming school year.

Community eligibility eliminates stigma and has led to a striking increase in the number of children eating breakfast and lunch at school.  Daily lunch participation rose 13 percent in schools in Illinois, Kentucky, and Michigan that adopted the Community Eligibility Provision for two years.  Even more remarkable, daily breakfast participation in these schools rose 25 percent (see chart).  As a result, 29,000 more children were eating breakfast daily.

School districts will soon learn whether they qualify for community eligibility for the next school year — and they’ll need to act quickly to adopt the provision.

  • By May 1, states must publish lists of schools that qualify to use the Community Eligibility Provision during the next school year.
  • By June 30, school districts must decide if they want to offer community eligibility in some or all of their qualifying schools.

School districts that are considering adopting community eligibility can start preparing now.  The U.S. Department of Agriculture has implementation guidance and a handy tool available so school districts can estimate their federal meal reimbursements under community eligibility.  Additional resources, including materials developed by the states that have implemented the Community Eligibility Provision, are also readily available.

Community eligibility has already ensured that low-income children in thousands of high-poverty schools receive two nutritious meals so they are ready to learn all day.  Over the next three months, thousands more schools can choose to be hunger-free.

In Case You Missed It…

April 11, 2014 at 3:25 pm

This week on Off the Charts, we focused on House Budget Committee Chairman Paul Ryan’s budget, the federal budget and taxes, Tax Day (April 15), health care, the safety net, and full employment.

  • On the Ryan budget, we featured a comprehensive roundup of CBPP analysis on the budget.  Richard Kogan illustrated that the Ryan budget gets 69 percent of its cuts from low-income programs.  Robert Greenstein rebutted Chairman Ryan’s criticism of our 69 percent figure and debunked Ryan’s attempt to deny that his budget deeply cuts low-income programs.  Dottie Rosenbaum warned that the Ryan budget’s SNAP (food stamp) cuts would affect millions of low-income Americans.  Chad Stone excerpted his US News & World Report post on how the Ryan budget could affect the economy.  Paul Van de Water analyzed Ryan’s Medicare proposals.
  • On the federal budget and taxes, Joel Friedman underscored the stark difference between the recent Obama and Ryan budgets on non-defense discretionary funding.  Chuck Marr explained the problems with inadequate regulation of commercial tax preparers and noted recent calls to give the IRS needed authority to oversee all preparers.  Robert Greenstein corrected a misrepresentation in congressional testimony regarding IRS training of tax preparers.  Chye-Ching Huang highlighted a New York Times editorial criticizing the Senate Finance Committee’s vote to reinstate dozens of tax cuts without paying for them.  Chuck Marr pointed out that tying federal unemployment insurance to extending the “bonus depreciation” tax cut would be unwise.
  • On Tax Day, we excerpted our paper on why the Tax Foundation’s annual “Tax Freedom Day” report gives a misleading impression of tax burdens.  We also highlighted several newly updated backgrounders on federal and state taxes and spending:  where our federal tax dollars go, sources of federal revenues, payroll taxes, tax expenditures, and where our state tax dollars go.
  • On health care, Judy Solomon listed three things that people who have yet to enroll in marketplace health coverage should keep in mind.  Edwin Park explained that overpayments to Medicare Advantage insurers help the insurers more than beneficiaries and argued that policymakers should resist calls to roll back health reform’s Medicare Advantage savings.  He also highlighted early data showing a decline in the number of uninsured under health reform.
  • On the safety net, Brynne Keith-Jennings pointed to new data confirming that SNAP caseloads and spending continue to decline.  Will Fischer explained that President Obama’s plan to raise rents on the rural poor is the wrong way to save money.
  • On full employment, we highlighted Former Treasury Secretary Larry Summers’ keynote speech at the launch of CBPP’s and Senior Fellow Jared Bernstein’s year-long project on making full employment a national priority.

In other news, we issued Robert Greenstein’s statement on House passage of the Ryan budget plan.  We issued papers on reducing overpayments in the Earned Income Tax Credit, Medicare in Ryan’s 2015 budget, seven myths about Medicaid, Ryan’s budget cuts in programs for people with low or moderate incomes, and the Tax Foundation’s misrepresentation of typical households’ tax burdens.

CBPP’s Chart of the Week:

A variety of news outlets featured CBPP’s work and experts recently. Here are some highlights:

House passes GOP budget plan despite bipartisan opposition
MSNBC
April 10, 2014

How Some Tax Preparers Feed on the Working Poor
Colorlines
April 10, 2014

We Should Be in a Rage
New York Times
April 9, 2014

Paul Ryan’s poor ‘savings’ plan
Washington Post
April 9, 2014

Obama Plan to Raise Rents on Rural Poor is the Wrong Way to Save Money

April 11, 2014 at 12:30 pm

About 42,000 extremely poor families — 15 percent of those assisted through the Agriculture Department’s (USDA) rural rental assistance program — could face rent increases of up to $600 a year under a proposal in President Obama’s 2015 budget.

Today, families with rural rental assistance must pay 30 percent of their income for rent and utilities.  The President’s proposal would require property owners to charge families a minimum of $50 a month — even if this exceeds 30 percent of their income.  Many of those who would be affected are especially vulnerable to hardship:  64 percent of households with USDA rental assistance have a head (or the head’s spouse) who is elderly or has a disability, and 135,000 children live in low-income families receiving such assistance.

USDA budget documents say that one goal of the proposal is to “encourage financial responsibility in tenants, increasing their opportunity for success on the path to homeownership.”  But there is no evidence that requiring destitute families to pay $50 a month helps them get back on their feet.  To the contrary, a growing body of research shows that extreme poverty — which the USDA proposal would exacerbate — does long-term damage to children’s neural development and education and employment prospects.

A second goal is to save money.  USDA estimates that the policy will reduce program costs by $5 million in 2015 and $20 million annually in later years.  But policymakers could surely find better ways to save $20 million a year than raising rents on some of the most vulnerable people in rural America.

USDA points out that some households with rental assistance through the Department of Housing and Urban Development (HUD) must pay $50 minimum rents.  But no major HUD program imposes a program-wide $50 minimum rent like USDA has proposed.  HUD’s supportive housing programs for the elderly and people with disabilities do not charge a minimum, while the Section 8 Project-Based Rental Assistance program has a $25 minimum rent and state and local agencies administering Housing Choice Vouchers and Public Housing can set the minimum below $50 or have no minimum at all.

USDA has also claimed that a proposed exemption for families who would face hardship from minimum rents — modeled on similar exemptions in HUD programs — would minimize any adverse consequences.  Tony Hernandez, the Administrator of USDA’s Rural Housing Service, told a House Appropriations subcommittee that households with incomes of $2,000 a year “probably would not have to pay because they would be exempted because of the hardship clause.”

But experience in the HUD programs indicates that very few would likely be exempted.  As we’ve noted, the HUD hardship policies have had little impact, partly because they require tenants — many of whom have physical or mental disabilities or very low education levels — to seek out exemptions.  A 2010 HUD study found that 82 percent of state and local housing agencies that chose to impose minimum rents exempted less than 1 percent of affected households.  (Moreover, the minimum rent proposed by USDA would fall almost exclusively on families with incomes close to or below $2,000, so if most of those families were exempted, the policy’s savings would largely disappear.)

Families facing hardship might have an even harder time obtaining exemptions in the USDA rental assistance program, where small rural property owners with limited administrative capacity would be responsible for implementing the hardship policy.  The best way to protect these families would be to reject the President’s proposal.

Just the Basics: Where Our State Tax Dollars Go

April 11, 2014 at 9:40 am

As Tax Day approaches, we’ve updated several backgrounders that explain how the federal government and states collect and spend tax dollars.  As policymakers and citizens weigh key decisions on how best to shape our future government, it’s helpful to examine where the dollars that comprise the budget come from and where they go.

The final installment in our series of revised “Policy Basics” backgrounders explains where our state tax dollars go.

In total, the 50 states and the District of Columbia spent a little more than $1 trillion in state revenues in fiscal year 2012, according to the most recent survey by the National Association of State Budget Officers.  (This figure does not include the federal funds that states also spent that year.)

By far the largest areas of state spending, on average, are education (both K-12 and higher education) and health care.  But states also fund a wide variety of other services, including transportation, corrections, pension and health benefits for public employees, care for persons with mental illness and developmental disabilities, assistance to low-income families, economic development, environmental projects, state police, parks and recreation, housing, and aid to local governments (see chart).

The figure above shows how states spend their tax dollars on average for the entire country.  But the specific mix of spending varies from state to state, depending on such factors as how the state and its localities share funding responsibilities for public services and how much state policymakers choose to invest in health care, education, and other areas.

Click here to read the full backgrounder.