The best tax analysts in the nation work for the Institute for Taxation and Economic Policy (www.itepnet.org). They have released a must-read two-page brief here:
Gross Receipts Taxes:
A Counterproductive Approach to Addressing Tax Regressivity
Illinois' Tax System: Truly "One of the Most Regressive"
Gross Receipts Taxes: Disadvantages Generally Outweigh Advantages
More Productive Approaches to Achieving Tax Fairness Are Available
The brief argues that dropping the corporate income tax, as Governor Blagojevich proposes, is a horrible idea, since it is the most progressive aspect of our tax system. It's the only tax that has the highest income earners paying more. Our sales and excise taxes hammer low-income people, which perpetuates poverty. In fact, here's how state and local taxes add up currently for taxpayers, based on their income.
13% of income paid by poorest 20%
11% of income paid by second 20%
10% of income paid by middle 20%
9% of income paid by 60-80% of income
6% of income paid by richest 1% income earners
See the graph on the policy brief. It's sobering.
We perpetuate poverty by taxing low income people far more than high income people -- as a percentage of income.
That's got to change.
Thank goodness Governor Blagojevich has made tax fairness the center of the debate. If we just used an actual flat tax, as Dick Armey and Phil Gramm and Steve Forbes and all the other Wall Street Journal Republicans have been pushing for, so that at the end of the year, everyone paid the same flat percentage of their income in state and local taxes, we'd have to dramatically cut taxes on lower-income people (income less than $45,000) and triple the state income tax to 9% or so on incomes above $100,000 or so. That would probably get us to the place where everyone pays about 10% of their income for state and local government.
Finally, the policy brief argues that we need to strengthen the corporate income tax by "repealing failed incentives like single-sales factor apportionment or by limiting overly generous net operating loss carry-forwards or carry-backs." And to lessen the burden on low- and moderate-income taxpayers, the brief suggests "instituting a graduated income tax structure or exempting groceries from the sales tax."