Sneaky ways to increase income taxes.The need for additional state revenues is not likely to disappear in the foreseeable future. Policymakers may want to take to heart a new report by the Center on Budget and Policy Priorities The Center on Budget and Policy Priorities (CBPP) is a non-profit think tank which describes itself as a "policy organization ... working at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals. . The Center recommends that states look at raising some revenues from the state personal income tax--the tax easiest to levy in a way that corresponds to taxpayers' ability to pay it. It also is the tax that can be structured to TABULAR DATA OMITTED grow from year to year in proportion to the income growth of the population.
The Center's report, Taxing the Top: Strategies for Increasing State Income Tax Revenue Without Changing Tax Rates, examines five alternatives to increasing personal income tax rates by focusing on high-income taxpayers. The report notes that wealthy taxpayers have the greatest ability to pay; they also saw the most income growth in the 1980s.
The five strategies are:
* Limiting itemized deductions Itemized Deduction
A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year. for high-income taxpayers.
* Phasing out the standard deduction The name given to a fixed amount of money that may be subtracted from the adjusted gross income of a taxpayer who does not itemize certain living expenses for Income Tax purposes. as income increases.
* Denying wealthy taxpayers the use of lower tax brackets Tax Bracket
The rate at which an individual is taxed due to a particular income level.
Each income class is taxed at a different level. Generally, the more you make the more you are taxed. in states with graduated tax Tax structured so that the rate increases as the amount of income of taxpayer increases. rate structures.
* Levying a minimum tax to limit how much high-income taxpayers can reduce their taxes through deductions and exclusions.
* Phasing out the personal exemption Personal exemption
Amount of money a taxpayer can exclude from personal income for each member of the household in calculation of a tax obligation.
See exemption. .
The revenue gain from each of these alternatives is modest--perhaps a 1 percent or 2 percent increase in income tax receipts. As the accompanying table demonstrates, however, 13 states have adopted more than one of the five alternatives and seven states use three of the five. The report encourages states to adopt options they do not already employ as alternatives to either program cuts or increases in regressive taxes. It points out, for example, that 30 states could institute a personal exemption phase-out and 31 could phase out lower tax brackets at higher income levels.