“Fiscal Cliff” will hurt states with high, low median incomes

“Fiscal Cliff” will hurt states with high, low median incomes

The tax increases in the “fiscal cliff” would drag down families in both the wealthiest and poorest states, according to a new report.

The Tax Foundation found that, generally speaking, states at the high and low ends of the income scale would be hit harder by the looming expiration of Bush-era rates and other tax changes than more middle-income states.

New Jersey, Maryland and Connecticut — three of the top five states in 2010 median income, according to the Census Bureau — would be hurt the most by the tax increases.

Many taxpayers in those states would face a higher bill if Congress does not enact a legislative fix to the Alternative Minimum Tax, which it has routinely done in the past. The AMT was created to ensure that the wealthy cannot legally avoid taxes, but would hit millions of more middle-income families without a patch.

Families in those states would see a tax increase of 6.6 to 6.8 percent, according to the Tax Foundation, a group that advocates for low tax rates and a simpler code.

West Virginia, Arkansas and Mississippi, which the Census Bureau says are the only three states with a median household income below $40,000, are also among the 10 states that would be harmed the most by the tax increases.

Those states would be hit by a combination of tax increases that would disproportionately hurt lower-income families — including the expiration of the current 10 percent income tax bracket and the current standard deduction for married filers.

An expanded child tax credit, enacted in the 2009 stimulus package, would also expire at year’s end.

Unless Washington acts by the end of the year, all Bush-era tax rates on income and capital gains will expire at the end of the year. The payroll tax cut will also expire at year’s end, after being in place for two years, without congressional action.

Taxpayers in Massachusetts, New Hampshire, North Dakota and South Dakota would also be disproportionately hit by the range of tax increases.

Washington, Hawaii, Colorado, Kansas and Illinois would face the least amount of average tax increases, the Tax Foundation found.

Policymakers have the upcoming lame-duck session of Congress to deal with those expiring tax provisions and automatic spending cuts, and officials on both sides of the aisle have already tossed out their opening bid in what could be protracted negotiations.

President Obama, fresh off of winning a second term last week, is pressing to allow tax rates to rise on family incomes above $250,000 a year. GOP lawmakers, led by House Speaker John Boehner (Ohio), have said they will not go along with tax rate increases, but could be open to higher tax revenues.

Source: The Hill