The Pew Charitable Trusts

WASHINGTON -- A growing number of states are taking advantage of overflowing revenues to relieve the tax burden on poor families, a new study has found.

In 1999, fewer than half the states that impose an income tax -- 20 out of 41 -- collected revenues from families earning less than the official poverty line.

Since 1991, four states have raised their tax thresholds to exempt these families. Two more, Delaware and New Jersey, will stop taxing poor families over the next two years.

Altogether in the 1990s, 19 of the 41 income-tax states significantly cut or eliminated taxes on poor families, the study finds.

Nine states impose no tax on wage earners: New Hampshire, Florida, Tennessee, Texas, South Dakota, Wyoming, Nevada, Washington and Alaska.

The report, released Wednesday by the Center on Budget and Policy Priorities, a liberal-leaning Washington think tank, examines state income taxes and their effect on couples with two children who earned $17,028 a year in 1999, the official federal poverty line for a family of four.

"Largely as a result of changes in the last three years, a substantial number of states had lower tax burdens on poor families in 1999 than they did in 1991. Other states, however, have shown a disappointing lack of progress during the 1990s," the report says.

Of the 20 states that will tax poor families come April 15, Alabama and Kentucky impose the highest levy, $555 and $423 respectively.

Six states, Hawaii, Michigan, Ohio, Oklahoma, Oregon and Utah, continue to collect revenue from poor families despite large cuts in personal income taxes enacted within the past few years. Those tax cuts generally benefited upper-income wage earners, the report says.

Eight states have allowed their taxes on families earning poverty-level wages to increase in the 1990s.

The report notes that low-wage workers in the nine states without income taxes bear a greater share of the tax load.

Income taxes are progressive, meaning the rich pay proportionally more than the poor. In states that rely heavily on sales taxes, however, poor workers contribute more as a percentage of their total income than their better-paid counterparts.

But income tax systems provide one of the simplest mechanisms for easing the tax burden on the poor, since all tax-filers must report how much they earn.

The federal government, for example, allows working families at or below poverty to receive a tax credit. Even if they owe no income tax, they can get money back, as a sort of wage supplement or an offset against sales taxes.

The Earned Income Tax Credit, as it is called, is one of the most potent anti-poverty weapons in the nation's arsenal. Because it encourages work and helps families increase earnings, it enjoys support on both sides of the aisle.

Particularly for families making the transition from welfare to low-wage work, money saved in taxes can compensate for new expenses and help them enjoy some of the fruits of a larger income.

"Targeting income tax relief to the poor is a simple and effective way to support those parents and help them meet the costs of child care, transportation and other work-related expenses," said Robert Zahradnik, one of the report's authors.

The report also looks at the tax burden of single parents with two children. A typical family moving from welfare to work is a mother with two kids. The report found that 18 states still tax these families.

• Since 1996, Iowa, Kansas, Massachusetts and Pennsylvania have raised their tax thresholds above poverty. Pennsylvania now taxes families of four only after they earn $26,000 a year, $8,970 above the poverty line. California's threshold of $35,500 is the most generous in the nation.
• In contrast, Alabama, Kentucky, Illinois, Virginia, Montana, Indiana, New Jersey, West Virginia, Hawaii, Michigan, Ohio, Louisiana, Oklahoma, Missouri, Oregon, Georgia, Utah, Arkansas, Delaware and North Carolina will collect revenues from poor families on April 15.
• Four states, Alabama, Illinois, Kentucky, and Virginia, tax extremely poor families -- those who earn less than half of official poverty.
• The eight states that raised the taxes of poor, working families in the 1990s are Alabama, Arkansas, Kentucky, Louisiana, Montana, Oklahoma, Virginia and West Virginia.
• Nine states now supplement the federal EITC with a refundable state tax credit for working families: Colorado, Kansas, Maryland, Massachusetts, Minnesota, New Mexico, New York, Vermont and Wisconsin. Iowa, Oregon and Rhode Island allow workers to claim a credit against their income taxes, but do not offer refunds to those who owe nothing.