Report: Poor Pay More in Sales Tax : ‘The Less You Make, the Worse You Do,’ Researcher Says

WASHINGTON — The nation’s poorest families, with incomes averaging less than $8,600 a year, pay five times as much of their earnings for state sales and excise taxes as those who make more than $600,000, a research and advocacy group reported Thursday.

“The less you make, the worse you do,” Robert S. McIntyre, director of Citizens for Tax Justice, said in releasing a comprehensive study of taxes in the 50 states. The unfairness is especially bad in states that impose heavy taxes on food, utilities, tobacco and fuels, he said.

It is not just the poor who spend a disproportionate share on sales and excise taxes, such as those applying to alcohol, gasoline and tobacco, the study found. A four-member family earning $31,000 a year spends three times as much of its income on these taxes, compared to the richest Americans.

Sales and excise taxes generally are at a flat rate, meaning that in a state with a 5% tax that applies to food, for example, the rich and poor would pay the same $1 tax on a $20 bag of groceries.

Citizens for Tax Justice, which is financed by labor unions and liberal social organizations, opposes such “consumption taxes” because they are not based on ability to pay. There is some support in Congress for a national sales tax to replace at least part of the income tax.

Worse Than Average

McIntyre, whose organization was a major influence in the thorough revision of the federal income tax enacted in 1986, said some “tax reformers” spend too much time in pursuit of the perfect income tax while ignoring the onerous burden that sales taxes create for the poor.

“That’s a mistake, because the worst state income tax in the nation is still a far sight fairer than any state sales tax,” he said.

In 23 states, the disparity between shares of income taken by sales and excise taxes is worse than the national average, the report said.

The poor in South Dakota and Mississippi pay about seven times as much of their earnings in sales and excise taxes as do the rich; in Tennessee, Alabama and Louisiana, almost six times as much.

The study found:

- The poorest 20% of four-member families, averaging income of $8,581, paid 5.4% of their earnings in sales and excise taxes last year.

- The second one-fifth, averaging $20,535, paid 3.9%.

- The third, averaging $31,497, paid 3.3%.

- The fourth, averaging $44,910, paid 2.9%.

- The highest-earning one-fifth, averaging $66,912, paid 2.5%.

- The top-earning 5%, averaging $187,316, paid 1.6%.

- Four-member families averaging $612,122 a year--the richest 0.7% of Americans--paid 1.1% of their incomes for sales and excise taxes.

Until states begin relying more on income taxes, McIntyre said, sales taxes can be made less onerous by extending rebates to the poor. The taxes also could be applied disproportionately to services that are generally used by the well-to-do, such as club memberships and home-improvement services, he suggested.

Only six states have sales tax credits for the poor, and only in New Mexico does the credit offset more than half of the burden for low-income people. The other five are Kansas, Vermont, Idaho, Hawaii and North Carolina.

Several Tax Food

Sixteen states, including the 10 with the most onerous sales taxes on the poor, all tax food, the study found. The 10 are Alabama, Mississippi, Georgia, North Carolina, South Carolina, Arkansas, Tennessee, South Dakota, Virginia and Hawaii.

The poor spend 6.2% of income on electricity bills, more than double the rate of the middle-income family. But that middle-income family pays three times as big a share for electricity as do the rich, the study found.

SHARING THE SALES TAX BURDEN

Here are portions of income that four-member families at three income levels paid for selected states’ sales and excise taxes in 1987, according to a study conducted by Citizens for Tax Justice, a research and advocacy group. The first column of figures is for the poorest 20% of families; the second is for the middle 20%, and the third is for the richest 0.7%. The states are arranged in order according to the size of the tax burden on the poor, with the heaviest burden first.

Average income State $8,581 $32,497 $612,122 Mississippi 9.6 5.2 1.4 Tennessee 9.3 5.4 1.6 Louisiana 8.6 4.8 1.5 Alabama 7.8 4.2 1.1 S. Dakota 7.7 4.5 1.3 Oklahoma 7.6 4.5 1.3 Utah 7.3 4.6 1.4 Texas 7.1 4.2 1.5 Washington 6.9 4.3 1.6 Illinois 6.4 3.7 1.2 California 4.5 2.8 1.0 Kansas 4.1 3.2 1.0 New Jersey 4.0 2.5 1.0 Vermont 3.8 2.7 0.9 Massachusetts 3.3 2.0 0.8

Source: Associated Press