Our country once had a more widely shared appreciation for both public services and the workers who provide them, including firefighters, teachers, and police officers. Today, however, state legislatures across the country are singing a very different tune. Instead of raising new revenue to protect those services and workers, states are slashing from their budgets the things that make our nation strong.
Cutting to get out of a deficit is like digging to get out of a ditch. It puts everything we value at risk. But it doesn’t have to be this way.
What if there were a solution to state deficits that would raise significant revenue, encourage investment, and create jobs — without cutting vital public services? And what if the revenue required by such a solution could be generated solely by making tax systems as fair as most Americans think they ought to be?
The solution is simple: we need to turn states’ fiscal status quos upside-down — literally.
United for a Fair Economy’s new report, Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, demonstrates that one powerful solution is to invert each state’s tax structure. We calculated how much revenue state governments would raise if they flipped their current effective tax rates at the 50th income percentile and had the top 20 percent of income-earners in each state pay taxes at the same rate as the poorest 20 percent.
The results of this fiscal flip are quite dramatic. By turning each state’s tax system on its head — from regressive to progressive — states would raise an additional $490 billion in revenue, easily wiping away the combined $112 billion state and local government budget shortfalls. The lake of red budget ink that has stained capitals across the nation would disappear overnight.
The report shows the extraordinary regressiveness of our current state tax structures. In plainer terms, low- and middle-income taxpayers are paying a greater share of their incomes in taxes than the wealthiest taxpayers in every single state in the nation. Relying on such an unsustainable structure is economically unsound and bad for our communities. And as several recent studies have pointed out, flipping them would be consistent with the majority of Americans’ perception of “fair.”
Achieving the “flipped” system would require significant changes in our state tax structures. For example, states would need to rely less on regressive sales taxes and raise more revenue from income taxes, in part by levying higher tax rates on the wealthiest Americans.
Of course, the biggest hurdle to achieving this inverted model is a lack of political will. But state-level elected officials can no longer ignore the fundamental roots of their deficit problems. Slashing essential public services and jobs will only drag us further away from achieving the kind of tax fairness that most taxpayers are already demanding.