Sunday, November 02, 2003

No income tax below poverty line

Full-time workers earning anything less than 8 bucks an hour are not making it.

Anyone can do the math. 320 bucks a week barely covers rent, food and transportation -- especially with any debt whatsoever.

What to do about it?

I think 80 - 90% of people (rich or poor, GOP, Dem or third-party) want public policies that raise the living standards of the working poor. They aren't sure if lots of government programs really help and don't want to pay taxes on a feel-good program that doesn't really do anything but pad a patronage machine.

We have the most effective, efficient government program imaginable to help the working poor:

Don't tax them.

The government should only tax people once they pass the poverty line (about $10,000 for a single person, $18,000 for a family of four with two kids).

Let me repeat that.

The government should not tax working people below the poverty line.

I believe that 80% of people would agree with that.

Do you? Email me at if you do, please. I'd really like feedback.

If the government stopped taxing working people below the poverty line, there would be less tax money coming in. In order to keep the budget balanced, we'd have to bring in new money.

Here's where the rubber meets the road.

Would you be willing to pay higher taxes on any income earned over $30,000 or so in order to cover the cost of not taxing anyone's income below the poverty line?

Let's make this concrete.

In Illinois, we have a 3% income tax. That represents about a week and a half of wages. (50 weeks in a year, 2% of annual income equals one week).

The state government taxes people after they earn $2,000. There is a $2,000 personal exemption from the income tax. Once someone earns $2,001, the state government starts applying the 3% tax.

So the state government taxes the person living in poverty with a full-time job the equivalent of a week and a half's worth of wages.

Which is a fortune to someone barely making it.

If we raised the state income tax from 3% to 4% -- representing about 20 additional hours of wages -- that would bring in about $2.7 billion (according to the Center for Tax and Budget Accountability).

There are almost 12 million people in the state. And each one of us is entitled to a $2,000 personal exemption from state income tax.

So, dividing $2.7 billion dollars into 12 million people gets us $225 in relief for each person in the state.

Which is enough to cover the cost of not taxing anyone below the poverty line, because that's about how much in the state income tax is collected now from the money earned below the poverty line.

Now, someone who earns $10,000 is taxed at 3% on $8,000 worth on income (because the first $2,000 is exempted from tax). That's $240.

$225 per tax return will cover that cost.

These are rough numbers, and I'd want the professionals to crunch them.

But the principle remains the same: the government should not tax working people below the poverty line.

Illinois should raise the personal exemption to $10,000 (or whatever figure works out) to ensure that no one working and still not making it past the poverty line is taxed.

What do you think?

Because I'd like to borrow a page from Lt. Governor Pat Quinn's handbook and put an advisory question on the ballot and see if some of the state's most affluent voters who would pay more tax think this is the right thing to do.

(Mr. Quinn would rather spend that extra money on Illinois schools and on tax relief for homeowners -- consistent with a long-time push for more state money for education and less reliance on the property tax. He's pushing forward with advisory referenda this March. I think that's great).

But this is a different issue.

The government should not tax working people below the poverty line.

Do you agree? And do you want to help make this happen? Email me:

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