Income inequality is at record heights. While 64 million low-wage workers – predominantly people of color – struggle to make ends meet, in the words of a working-class voter in Alabama, “The rich are getting richer while everyone else is stuck.”
The tax code in most states exacerbates this problem, with low-income people paying a higher share of their income in taxes than the wealthiest. On average, the poorest quintile of Americans pays more than twice the rate of state and local taxes as the top 1 percent does, and about half again what the top 10 percent pays. Some states are much worse (see state-by-state data here).
A tax increase on top earners to pay for a Working Families Tax Credit would be largely or entirely offset by the recent federal tax cuts hat mainly benefited the highest earners. Using Colorado as an example:
- The top 1 percent in Colorado got a roughly 3 percent drop in effective tax rates from the federal tax cuts (2.8 percent).
- Under a proposed tax increase to pay for a Working Families Tax Credit, the top 1 percent see a state tax increase of 2.4 percent. When added to their federal tax cuts, top earners get a net tax cut of 0.4 percent -- they would still pay lower combined taxes in 2019 than in 2017.
With that increase Colorado would tax the top 1 percent alongside Wisconsin, West Virginia, and Nebraska.