How do state taxes affect child poverty rates?
“Income inequality”, i.e. the gap in income between the rich and poor, has gotten a lot of attention recently as inequality in America has reached record – unsustainable, say many – levels. While a variety of factors contribute to this, a recent report by the Federal Reserve shows how the tax systems in some states play a role.
Federal policy taxes high-income individuals more than those with low incomes, a measure aimed at reducing overall inequality. Some states build on that Federal effort through their own tax policy and with other steps to further decrease the gap between rich and poor. States that provide a version of the earned income tax credit, for example, can see a big reduction in inequality.
According to the Federal Reserve report, however, plenty of other states actually undermine the Federal policy intent. Gas taxes or other regressive sales taxes, where everyone pays the same rate, contribute to increased inequality.
Every Child Matters took a look at the data and found an association between the rate of children living in poverty and how a state’s tax system contributes to inequality. Unsurprisingly, states with more regressive tax policies, contributing to increased inequality, have higher rates of child poverty than states with more progressive tax structures. States are different, of course. But even when accounting for other factors such as race, the link between child poverty and state taxes remains significant.