State taxes spare poor by hitting middle class more, study says Citizens for Tax Justice group says tax plight of middle class worse.

April 23, 1991|By Jon Morgan | Jon Morgan,Evening Sun Staff

Maryland's much-maligned tax structure -- criticized for unfairly burdening the poor -- actually does a better job than most states in sparing the poor. It does so, however, by hitting the middle class harder than the rich, according to a new study.

And, while the state's tax structure has grown more "progressive" over the last six years, the plight of the middle class at tax time has worsened.

The study, released yesterday by the Washington-based Citizens for Tax Justice, looked at the relationship between taxes and income in 50 states and District of Columbia.

The study estimated how much people pay for such things as cigarettes, cars and housing and then computed total excise, income, sales and property taxes. The average tax bite was then compared across various income brackets.

It found that in 1991, only four states require the poor to pay a lower percentage of their income in taxes than does Maryland. Maryland also is one of only six states in which the rich pay a larger proportion of their income in taxes than do the poor.

But only six states treat the middle class worse, the study shows.

For example, a "typical" family of four in Maryland with an income of $15,800 -- the average for the poorest 20 percent of four-member households -- will pay about $1,264 a year in state and local taxes this year.

That represents 8 percent of the family's earnings. The richest 1 percent, with average household incomes of $961,900, pay an average of $77,913 in taxes, or 8.1 percent of earnings.

Nationally, the poorest families pay 13.8 percent of their income in state and local taxes, while the richest pay 7.6 percent.

Nevada, Wyoming and Alaska have the lowest taxes on the rich, while Washington, Texas and Nebraska have the highest taxes on the poor.

"Maryland did better than most, relatively speaking," said Bruce Fisher, research director for the Citizens for Tax Justice. But the group thinks the wealthy can afford to contribute a greater amount of their incomes to taxes.

Nationwide, wealthy people pay more money in taxes than do poor people. But their incomes are so much higher than those of the poor that their tax bill still tends to consume a smaller percentage of their income, leaving more money for luxuries.

And, even though they may drive more expensive cars and live in more expensive homes, the taxes they pay for those goods still represent a smaller share of their income.

"Now, more than ever, we must insist that the wealthiest Marylanders begin to pay their fair share of state taxes," said George Moehrie, president of the Maryland Citizen Action Coalition, in a statement released along with the study.

The study indicated that since 1985 Maryland has made progress in making its tax code more "progressive" by shifting the burden somewhat to richer citizens. In 1985, the poorest families paid 10.3 percent of their income on state and local taxes, while the richest paid 7.4 percent.

On the other hand, lower middle-income residents saw their tax burdens increase from 10.7 percent of income in 1985 to 11.5 percent in 1991.

The improvement for the poor is the chiefly the result of several reforms made in the late 1980s, said William S. Ratchford 2nd, the General Assembly's chief budget adviser.

The amount of income shielded from income taxes as a "personal exemption" rose from $800 to $1,200 per person. And the state adopted a modified "earned-income credit" that extended tax deductions to families with children and low incomes.

Ratchford cautioned against drawing too many conclusions from such studies, however, because they must make assumptions that may or may not match the actual spending habits of "typical" taxpayers.

The state's chief advocate for tax reform -- R. Robert Linowes -- said the study confirms his criticism of Maryland's tax structure even though it showed the poor receiving somewhat better treatment than a study he conducted.

His study, which considered only state taxes, found that residents with incomes of $15,000 to $25,000 pay an average of 10.5 percent of their income in taxes while those earning over $50,000 pay only 8.5 percent.

Linowes chaired a commission appointed by Gov. William Donald Schaefer that studied the state's tax system. Its recommendations, released last fall, were the basis of a tax overhaul proposed by Schaefer in the just completed session of the General Assembly. Lawmakers deferred the proposal until it could be studied this summer.

Moehrie said the Linowes recommendations are a step in the right direction but they do not go far enough. His group opposes sales and excise tax increases because they tend to burden the poor and middle class more than the rich, he said.

Linowes agreed that a tax system based exclusively on income would be fairer, but it would not be easy to achieve.

"It would be impractical politically. it would be too great an imposition on one classification of taxpayer," Linowes said.

The Citizens for Tax Justice study based spending patterns on federal data which estimate the amount of money people in various income groups spend on cigarettes, cars and other taxable items. Renters are assumed to pay half the property taxes on their home. Tax increases passed by the Maryland legislature this spring were included in the data.

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