Taxes (Coursework Sample)

{STATE TAXES CONTRIBUTION TO THE INCREASING INEQUALITY} {Name} {School} Introduction Causes of income inequality in the United States describe why changes in the country's income distribution are occurring. This topic is subject to extensive ongoing research, media attention, and political interest, as it involves how the national income of the country is split among its people at various income levels. The federal tax code reduces income inequality significantly, taking more from the rich than it does from the middle class and the poor. What about state taxes, often ignored in the inequality conversation because data are so hard to come by. Level of Government Mostly Affected New research by a trio of Federal Reserve staff economists finds that, on average, state taxes increase income inequality, albeit only slightly. Most of the tax systems impact on income inequality comes through the federal tax code. But and here's the most interesting finding state tax systems vary enormously. In a few states, Minnesota, Oregon and Wisconsin among them, state taxes reinforce the effects of the federal tax code, further shrinking the income gap between rich and poor beyond what federal taxes do. But in others, Tennessee, Mississippi and West Virginia among them, state taxes undo about one-third of the inequality-reducing force of federal taxes. In two of the most populous states, Illinois and Florida, state taxes undo roughly one-sixth of the inequality-reducing effects of federal taxes. States, of course, rely more on sales taxes than the federal government does—and sales taxes in general are more regressive than the federal income tax, which takes more of a bite out those with higher incomes. In comparing states to one another, the economists find that state gasoline taxes tend to widen the income gap. State sales tax exemptions for food and clothing reduce the income gap because lower income families tend to spend a greater fraction of their income on food and clothing than the rich. State earned-income tax credits which supplement the federal EITC to provide tax breaks and, sometimes, cash to low-wage workers reduce inequality. Analysis The working paper by Daniel Cooper of the Federal Reserve Bank of Boston and Byron Lutz and Michael Palumbo of the Federal Reserve Board in Washington, presented at a recent National Tax Association conference, finds that over the past 30 years, the inequality-reducing effects of combined federal and state taxes have grown significantly. About two-thirds of that is due to the federal tax system and the rest to changes in state taxes. The research, based on data from 1984 to 2011, looks at the effect of taxes on the distance between the incomes of those at the 10 th percentile (those whose incomes are below 90% of the population) and the 90 th percentile (those whose incomes are above 90% of the population). It doesn't consider the impact of taxes on the very rich, the top 1%. Their research shows the degree to which taxes in each state and the District of Columbia offset the inequality-reducing effect of federal taxes or enhance it.... The United States is facing economic disaster on a scale few nations have ever experienced. Most people are unaware of the easily observable signs of this emerging crisis. While we persist in our superpower mentality, we have quietly become a second-class country in many respects. We no longer manufacture what we need to sustain ourselves, we import much more than we export, and we are selling off our assets and taking on massive debts to sustain a standard of living we can no longer afford. Not only is this not the way America became a superpower, it is a sure way to lose this status. We are failing even to acknowledge predatory foreign trade practices undermining US industry. Instead we encourage US manufacturers to design, engineer, and produce in third world markets like Mexico and China. Just look at the deficit results of our current "free trade" agreements alone, excluding Key Solutions Drastic action is needed to restore our economic and financial independence and we must begin immediately to rebuild our industries. It is essential that our government should ensure that it is once again profitable to produce most goods and services in American factories employing American workers. Despite indisputable evidence that current policies have proved grossly inadequate or even counterproductive in the past, our leaders remain committed to a business-as-usual strategy doomed...