Poverty Rate Versus Tax Burden

The Providence Phoenix’s Brian C. Jones puts the idea that high taxes are driving people away from Rhode Island into the category of just-a-theory…

There has been a growing conviction that high taxes drive people away from Rhode Island and deplete the lifeblood of the private economy. Whether the world really works that way is debatable. What is not in dispute is that many economists and policymakers believe it to be the case, including Republican Carcieri, and legislative Democrats.

The theory is actually a bit more complex, that the combination of high taxes and poor-to-average public services in return drives the middle class away, because they can get more bang for their buck by moving elsewhere.

That point aside, data sources exist allowing the history of tax impact on demographics to be examined in some detail. Let’s begin with the U.S. Census Bureau’s yearly data on the poverty rate in each state. According to that data, the poverty rate in Rhode Island has been over 90% of the national rate for four years in a row, the first time the relative rate has been that high for that long since the data series began in 1980. That means in those four years…


  1. Poor people have come to the state, or
  2. Middle-class people have left the state, or
  3. Middle class people have been driven into poverty, or
  4. Any or all of the above.
But does the unprecedented relative poverty rate have anything to do with tax policy?

Well, the Tax Foundation has compiled data on each state’s tax-burden ranking since 1970 (Rhode Island is currently ranked 4th). By combining the Tax Foundation data with the Census Bureau data, we can see if there is a correlation between tax-policy and poverty rates. The plot below compares Rhode Island’s relative poverty rate between 1980 and 2005 to its tax-burden ranking from the previous year. The trend is unmistakable…

PvtGraph.gif

The high poverty period in the upper left-hand corner of the graph isn’t unique to the here-and-now, it also involves the years 1982-1984, the only other period since 1980 prior to the stretch beginning in 2002 where the RI relative poverty rate was over 88% for three years in a row. You can make the plot in other ways, tax-burden this year versus poverty rate, tax burden over the past two years averaged together, etc. and you’ll see basically the same trend.

Jones’ article includes this bit of analysis from University of Rhode Island Political Science Professor Maureen Moakley…

“Up until the 1980s, we were in the bottom of per-capita income,” Moakley says. “We really were a poor state, and that kind of body politic was very sympathetic with the social-welfare programs, because, ‘we need them.’ We now are a very prosperous state. We have more people doing better and [being] less concerned; there’s less of a critical mass that demands social services.”

From the graph above, if the goal is to generate more political support for poverty programs by creating more poor people, then raising taxes seems to be the way to go!

Here is the Tax Foundation’s data on Rhode Island’s tax burden ranking, and the Census Bureau’s data on Rhode Island’s relative poverty rate…





























Year RI
Tax Rank
RI Relative
Poverty Rate
1980 11 82.3%
1981 8 83.6%
1982 7 88.7%
1983 10 95.4%
1984 13 88.9%
1985 15 66.2%
1986 15 65.0%
1987 14 60.4%
1988 21 75.4%
1989 26 52.3%
1990 15 55.6%
1991 12 73.2%
1992 11 83.8%
1993 15 74.2%
1994 11 71.0%
1995 12 76.8%
1996 9 80.3%
1997 9 95.5%
1998 8 91.3%
1999 8 84.0%
2000 5 90.3%
2001 5 82.1%
2002 5 90.9%
2003 5 92.0%
2004 5 90.6%
2005 4 96.0%

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Greg
Greg
14 years ago

How can you tell when Maureen Moakley is saying something stupid?
Her lips move.

Maggie's Farm
14 years ago

Saturday Morning Links

High taxes raise poverty rates. A look at Rhode Island, by Anchor RisingA primary school in Amsterdam will no longer discuss farms. Guess why?Al Gore said this (from Michelle):"Art, music, film, dance, poetry — all the arts — have long been our

John
John
14 years ago

What Brian Jones fails to realize is that when you are dealing with a complex adaptive system like a state economy, cause and effect are usually both non-linear and accompanied by significant time lags. The Democratic leadership in the General Assembly is right to be worried; they know, to borrow a Titanic analogy, how many compartments have been holed below the waterline by the cumulative effect of their policies, and what the eventual consequences must be. I wouldn’t be surprised if they were all hoping for the housing crash to continue, so they will be able to deflect blame for what inevitably lies ahead onto national, if not global forces. Either way, they know the game is over; now it’s just a question of how fast the clock runs out, and how the implosion unfolds.

charles v davino
charles v davino
10 years ago

I am a retiree living on Social Security. Although the cost of living is high I can manage very well. However, Connecticut state income taxes are driving me into poverty. For what government is doing to the people today years ago Americans picked up arms against them, as they literally are raping, pillaging and looting us.
so I am considering going to a senior citizens home where they will have to pay for my heat and take very little rent from me because of my small incom.further driving up taxes. How stupid can they get or is it deliberate as they want to create a need for themselves so they can keep their lucrative jobs. I believe that is the reason. It is time for a revolution as they simply are arrogant creeps who refuse to listen to the public. If you go back in American history all Justice came from the end of a gun barrel. America seems to understand nothing else. From the beginning till now America pursues with the gun. We have created more wars in this world than any other country. And the beat goes on.

Nanny Cam
Nanny Cam
9 years ago

If the career you have chosen has some unexpected inconvenience, console yourself by reflecting that no career is without them. – Johnson

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