Saturday, November 17, 2018
Hawai'i Free Press

Current Articles | Archives

Friday, October 19, 2018
Hawaii 2nd Most Regressive Tax System in USA
By News Release @ 3:54 AM :: 695 Views :: Hawaii Statistics, Tax Credits, Taxes

Editor's Note: Obviously the solution is to cut taxes on the rich.  If the rich paid less taxes, the HGEA would not be able to create as many 'positions'.  With fewer 'positions', the HGEA would not have personnel to handle all the tax returns filed by poor people, thus eliminating the need to tax them.  Taxes on the poor could then be zeroed out.

Who Pays?

A DISTRIBUTIONAL ANALYSIS OF THE TAX SYSTEMS IN ALL 50 STATES

From ITEP, October, 2018

According to ITEP’s Tax Inequality Index, which measures the impact of each state’s tax system on income inequality, Hawaii has the 15th most unfair state and local tax system in the country. Incomes are more unequal in Hawaii after state and local taxes are collected than before. (See Appendix B for state-by-state rankings and the methodology section for additional detail on the index.)

REGRESSIVE HAWAII TAX CODE FEATURES

  • EITC is temporary and non-refundable
  • Provides preferential income tax rates for income from capital gains
  • Comparatively high reliance on sales and excise taxes
  • State and local sales tax bases include groceries
  • Provides a partial income tax deduction for state income taxes paid
  • Comparatively high cigarette tax rate

read … ITEP Who Pays? (Hawaii pg 54-55)

Coverage: 

  *   *   *   *   *

“Who Pays?” Doesn’t Tell Us Much About Who Actually Pays State Taxes

by Jared Walczak, Tax Foundation, October 18, 2018

Yesterday, the Institute on Taxation and Economic Policy (ITEP) issued the sixth edition of its “Who Pays?” report, which attempts to quantify the distributional impact of the tax codes of all 50 states and the District of Columbia. The publication’s “Inequality Index” is widely cited, particularly since many states which are widely touted as having competitive tax codes rank poorly on ITEP’s measure of income inequality. Given the prominence of this study, it is worth considering what it can and cannot tell us.

In practice, the “Who Pays?” report is overwhelmingly a measure of the progressivity of the individual income tax, and not of the tax code as a whole. States with flatter income taxes, or which forgo an income tax altogether, rank very poorly under ITEP’s methodology regardless of what the rest of their tax code looks like—because, to a significant extent, the rest of the tax code is omitted from ITEP’s analysis.

All distributional analyses are estimates and require certain stylized assumptions to be made, assumptions which won’t perfectly correspond with the real world. It’s important, though, for those assumptions to be as realistic as possible, and in this, ITEP’s approach has some serious shortcomings and relies on extremely outdated taxpayer data. Here are some points to bear in mind when considering ITEP’s results.

  • “Who Pays?” ignores wide swaths of the tax code. 

    The ITEP study looks at income, sales and excise, and property taxes. It omits a range of taxes which tend to be highly progressive (that is, falling more heavily on higher-income individuals), like inheritance and estate taxes, real estate transfer taxes, leasehold taxes, and insurance premium taxes. It is difficult to make claims about the distributional impact of state and local taxes when important–often highly progressive–sources of tax revenue are excluded from the analysis. Because ITEP’s methodological notes are limited, moreover, we know very little about how they treat certain taxes—for instance, how their model distinguishes the distributional effects of a gross receipts tax from those of a sales tax.

  • The corporate income tax, commercial property taxes, and other progressive taxes are largely excluded from analysis.

    Although ITEP has generally favored higher corporate income taxes and clearly regards them as progressive, a state’s corporate income tax does almost nothing to improve the state’s progressivity in “Who Pays?” That’s because ITEP rightly observes that the burden of corporate income taxes is borne by owners/investors, wage earners, and customers, and that much of the burden is “exported” to investors, customers, and even employees in other states and around the world. So far, so good. This assumption is certainly correct. But ITEP’s solution to this problem is to take a significant fraction of corporate income tax burdens allocated to out-of-state payers and simply exclude it entirely from the analysis. The excluded portion disproportionately falls on higher-income owners of capital, thus making state tax codes look significantly less progressive by its omission.

  • The same effect is present in ITEP’s analysis of commercial real property and business tangible personal property taxes. Recognizing that much of this burden falls on out-of-state individuals, the majority of the burdens of these taxes are factored out of the analysis. The burdens of other states’ corporate income and property taxes, falling on high earners in a given state, are not included as an offset. The result? Two highly progressive taxes–the corporate income tax and property taxes on businesses–barely show up in ITEP’s analysis. Little wonder ITEP finds that state tax codes are almost invariably regressive, when the study functionally omits some of the most progressive provisions.
  • Preferential tax treatment of low-income retirees doesn’t count. 

    Retirees, and particularly low-income retirees, often receive extremely generous treatment under state and local tax codes. These preferences for low-earning seniors are omitted entirely from ITEP’s analysis, which expressly excludes retirees.

  • ITEP uses a controversial approach to calculating tax distributions. 

    ITEP uses a “snapshot” rather than lifetime income approach in calculating tax distributions, which yields findings of substantially greater regressivity. For instance, a law school student can show up as extremely low-income, and have outlays well in excess of income, but it is not very meaningful to think of someone with a future of high income as being subject to regressive taxation. The same goes for a wealthy retiree with more assets than income. A better methodology would recognize the difference between stocks and flows.

  • The study considers state tax codes in a vacuum.

    There may be value in examining the progressivity or regressivity of state and local tax structures on their own, but actual taxpayers also pay federal taxes, which tend to be quite progressive and yield a progressive overall tax structure. Notably, ITEP’s methodology always leads to the same conclusion: that virtually all state tax codes are too regressive. New Jersey has a progressive individual income tax with a top rate of 10.75 percent and a corporate income tax rate of 11.5 percent. The state also levies an inheritance tax. Nevertheless, ITEP only regards this highly progressive tax code as slightly progressive, giving it an Inequality Index score of +0.6 percent. By way of contrast, the worst-ranking state in the study has a score of -12.5 percent.

  • The analysis is based on extremely old data.

    The sixth edition of “Who Pays?” is based on 2018 laws, 2015 population levels, and 1988 federal tax data. Data availability issues often require using modeling inputs that are at least a few years old, but the datasets used by ITEP’s model haven’t been published in decades, so ITEP continues to rely on IRS taxpayer data from tax year 1988. So much has changed over the past 30 years that, whatever adjustments ITEP makes to bring the figures up to date, their reliability is suspect.

ITEP does deserve credit for an important methodological improvement in the latest edition. In the past, we have criticized their inclusion of what they term the “federal offset”–in fact, the state and local tax deduction–as if it were a state, rather than a federal, tax policy. By cherry-picking one regressive provision in an otherwise highly progressive federal tax code and applying it in an analysis of state taxes, ITEP made every state’s tax code look significantly more regressive.

Now that the state and local tax deduction is capped at $10,000 under the new federal tax law, ITEP made the decision to remove the “federal offset” from its methodology altogether rather than scaling it down based on a $10,000 cap. This change is likely responsible for the fact that five states and the District of Columbia are now shown as having mildly progressive state tax codes, whereas prior editions unconvincingly asserted that every single state had a regressive tax code.

The “Who Pays?” study undoubtedly tells us something about the relative progressivity or regressivity of state tax codes, but by omitting so much of the tax code and relying so heavily on outdated taxpayer data, it ultimately tells us very little about who really pays state and local taxes.

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

808 State Update AM940

ABCDEFG Blog

ACA Signups Hawaii

ACCE

Affordable Hawaii Coalition

ALEC

Alliance Defending Freedom

Aloha Conservative Alliance

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii

AMVETS-Hawaii

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

Conservative Forum for Hawaii

CSIS Pacific Forum

DAR Hawaii

DeedySupport.com

DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii

FIRE

Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute

Habele.org

Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Families for Educational Choice

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Senate Informer

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling

HIEC.Coop

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube

HPACC

Hump Day Report

Hunting, Farming and Fishing Assoc.

I Vote Hawaii

If Hawaii News

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

Judgepedia Hawaii

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes

KeyWiki

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

MentalIllnessPolicy.org

Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii

NARTH

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii

OHA Lies

Ohana Policy Group

OurFutureHawaii.com

Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Salvage The Rail

Save the Plastic Bag

School Choice in Hawaii

SenatorFong.com

SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Copenull

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

TEA Party Maui

TFB Micronesia

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

United Veterans Hawaii

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT