Closing Tax Gap Would Reap $200 Billion A Year: Report

If the rich paid the same state and local tax rate as the middle class, states and cities would have tens of billions of dollars more a year in public revenue, according to a new report from two left-leaning policy groups. The analysis comes as many newly elected state legislatures open their annual sessions debating how to deal with budget shortfalls.

Last month, the nonpartisan Institute on Taxation and Economic Policy found that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent). The report out Friday from Good Jobs First and the Keystone Research Center finds that if tax laws were changed to compel the highest income earners to pay the same rate as everyone else, states and localities would rake in $128 billion a year in new revenue. If just the top 1 percent of earners were compelled to pay the typical middle-class tax rate, the report says the change could raise $68 billion in revenues.

For comparison, the report notes that the total annual price tag of backfilling public pension shortfalls is $30.5 billion. It also finds that five states that would reap the most revenue from equalizing tax rates -- Texas, Florida, Pennsylvania, Massachusetts and Ohio -- are among those with the largest pension shortfalls.

Despite the findings, the report is likely to have no effect in many state legislatures, as it follows a 2014 election that saw tax-averse Republicans increase their power in the nation’s statehouses.

The National Conference of State Legislatures reports that the GOP now controls more than 55 percent of the country’s 7,383 legislative seats -- the most the GOP has controlled since 1920. Many Republican lawmakers are championing proposals for new state tax cuts, some of which could further widen the gap between the rates paid by the rich and the poor.

Meanwhile, Republican governors running for president in 2016 will likely jockey to show who is more devoted to tax cuts and budget cuts. Wisconsin Gov. Scott Walker, for instance, has proposed both higher education cuts and property tax cuts in his most recent annual budget. Louisiana Gov. Bobby Jindal already has signed the largest tax cut in his state’s history and has pushed cuts to higher education funding. New Jersey Gov. Chris Christie has handed out record amounts of corporate tax breaks while declining to make actuarially required payments into his state’s pension system.

CORRECTION: The original report from Good Jobs First and the Keystone Research Center said that if the top 1 percent paid the same tax rate as the middle 20 percent, it would generate an additional $88 billion in new revenue, and that if the top 20 percent paid the same tax rate as the middle 20 percent, it would generate $200 billion. The groups subsequently revised the estimates down to $68 billion and $128 billion, respectively. This story has been updated to reflect those revisions.