IMPOVERISHMENT BY TAXATION.

• Author: Kleiman, Ariel Jurow

INTRODUCTION 1453 I. THE STANDARD TAX POLICY CRITERIA 1459 A. The Standard Criteria: Progressive, Inequality Reducing, Poverty Cutting 1459 B. Accounting for Taxes on Low-Income Households 1462 II. INTRODUCING FISCAL IMPOVERISHMENT 1465 A. Defining Fiscal Impoverishment 1465 B. The Standard Criteria Overlook Fiscal Impoverishment 1467 C. Why Consider Fiscal Impoverishment? 1470 1. Human Dignity 1471 2. Governments' Goals and Duties 1473 III. FISCAL IMPOVERISHMENT IN THE UNITED STATES 1476 A. Specific Taxes and Transfers 1476 1. Taxes 1476 2. Transfers 1480 B. How Fiscal Impoverishment Occurs 1485 1. Families with Children 1486 2. Childless Individuals and Households 1497 C. Addressing Challenges and Concerns 1500 1. Defining and Valuing Fiscal Inputs 1500 2. Poverty Threshold Challenges 1502 3. Defending the Calculative Exercise 1503 IV. RETHINKING TAXES ON LOW-INCOME HOUSEHOLDS 1504 A. Current Practices and Policies 1504 1. Measure Fiscal Impoverishment 1504 2. Tax Policy Reforms 1506 B. Broad Fiscal Reform 1509 C. The Double-Edged Sword of Politics 1511 CONCLUSION 1514 APPENDIX 1514 INTRODUCTION

The U.S. fiscal system is broadly progressive and reduces poverty and inequality (1) These well-accepted goals of progressivity, inequality reduction, and poverty alleviation tell a certain story: The tax and transfer system improves on market outcomes by redistributing resources from rich to poor. The addition of state and local taxes complicates the narrative a bit, (2) but a general trend of progressivism and poverty alleviation remains essentially true. (3)

And yet, this story rings hollow to the millions of low-income people across the United States who contribute to public coffers despite being unable to satisfy their own basic needs. (4) These households might pay sales taxes, payroll taxes, and perhaps even state or federal income taxes while receiving little cash support to offset the levies. (5) The result is that these households are left poor or poorer after taxes and transfers. Thus, while the U.S. fiscal system may be equalizing and poverty reducing for the population as a whole, for many individual low-income households, it is impoverishing.

Scholarship on taxation and poverty in the United States is niche but robust. (6) Researchers note, in particular, the heavy and regressive burdens that federal payroll taxes and state and local sales taxes impose, (7) Despite this important work, and in contrast to the well-accepted criteria noted above, there is not a systematic measure of taxation of low-income households that succinctly captures the hardship caused by such costs.

This Article proposes such a measure, and in doing so makes three contributions to the literature on redistribution, fiscal policy, and the U.S. social safety net. First, it offers a formalized measure of taxation of lowincome households, presenting a concept called "fiscal impoverishment." (8) The word "fiscal" here is used in the public-finance sense--as in "fiscal policy"--rather than the broader meaning that encompasses all things financial. (9) Fiscal impoverishment means that certain individuals are pushed into poverty or further into poverty by paying taxes, even after accounting for certain antipoverty public benefits they are likely to receive. (10) In other words, certain poor and near-poor individuals bear a net positive tax cost. For some living just above the poverty line, the net tax cost is large enough to push them into poverty. For those already living below the poverty line, this net tax cost pushes them further into poverty. (11) Importantly, this Article does not take a position on the proper way to measure poverty other than to assert that arriving at some threshold is possible and necessary (12)

It is worth mentioning a limiting principle of this analysis up front: Fiscal impoverishment does not take into account the value of every public good that people living in poverty receive. Likely no one would appear fiscally impoverished if every conceivable public good were included on the benefit side of the ledger. Doing so would also entirely miss the point of the exercise. Fiscal impoverishment seeks to capture the worsened deprivation that those living in poverty experience when they bear net positive tax costs. To offset this harm, a public good must directly ameliorate material deprivation by providing cash, food, housing support, or other basic needs. Certainly, someone living in poverty benefits from roads, military protection, parks, and other government spending. Nonetheless she is still considered poor and remains severely deprived even after her use of these public goods. For this reason, fiscal impoverishment analysis maintains a narrow focus on safety-net and antipoverty benefits that bear on basic needs.

The standard redistributive goals of progressivity, inequality reduction, and poverty alleviation fail to account for fiscal impoverishment. (13) The Article refers to these three goals as the "standard criteria." Their blindness to impoverishment occurs because they are based on aggregate, anonymous measures that cannot track changes in specific households' financial situations over time. (14) In contrast, fiscal impoverishment is a dynamic and individualized concept that captures the intertemporal trajectory of specific households from before taxes and transfers to after. It therefore offers a complementary alternative to the aggregate measures that have dominated the distributive justice discourse and analysis for so long. (15)

The Article also explains why fiscal impoverishment merits attention. For one thing, fiscal impoverishment violates individual human dignity by exposing people to deprivation, degradation, and social exclusion, among other harms. (16) Guarding human dignity requires tracking harms to all individuals, which aggregate redistribution metrics cannot do, but fiscal impoverishment analysis can. Moreover, governments have both internally defined poverty-alleviation goals and a foundational duty to not harm their citizens and residents. (17) Fiscal impoverishment makes satisfying those responsibilities impossible. It is thus a particularly grave harm for the government to make poor people poorer, over and above the social harms attributable to persistent poverty or inequality. In raising such concerns, and distinct from the aggregate and anonymous standard criteria, fiscal impoverishment foregrounds individual human dignity and implicates the economic responsibilities of the state vis-a-vis low-income taxpayers.

The Article's second contribution is to illustrate how fiscal impoverishment occurs and to sketch its scope throughout the United States. To do so, it estimates net tax burdens for several stylized low-income households across all fifty states and the District of Columbia. For example, a childless worker in California earning poverty-level wages in 2019 would have paid approximately $2,300 in federal, state, and local taxes, pushing his after-tax income well below the poverty threshold. (18) This work reveals that fiscal impoverishment is significant and highly variable. It affects millions of households, with costs distributed via a patchwork of federal and state tax and safety-net programs. (19)

The distribution of fiscal impoverishment's harm is not random or haphazard. Rather, the patterns reflect longstanding pathologies in U.S. safety-net programs, namely, the lack of support for individuals without children, nonworking households, families with extended-kinship and nonkinship care arrangements, and immigrants. (20) The distribution almost certainly reflects racial disparities as well, since Black and Latinx families are more likely than others to be denied the refundable tax credits that protect most working families from fiscal impoverishment. (21) Even within these disadvantaged groups, the degree of fiscal impoverishment differs greatly from state to state, reflecting the federal nature of our tax and transfer system. (22)

The existence of fiscal impoverishment should not surprise us. Other legal systems also extract resources from struggling households--chief examples being the criminal justice and child support systems. (23) Similar to fiscal impoverishment, these government extractions often track familiar fault lines of race and citizenship status. (24) As merely one example, criminal court and carceral fees exert significant costs on low-income individuals and bear little relationship to public-safety goals. (25) In following these well-worn patterns, fiscal impoverishment can be situated within a broader context of government predation of vulnerable American households. (26)

After illustrating how fiscal impoverishment occurs, the Article's third and final contribution is to explore what it means for U.S. tax and transfer systems, offering recommendations for policymakers, reformers, and anti-poverty advocates. The Article's primary recommendation is that impoverishment analysis should be formalized and broadly adopted to guide policy reform alongside traditional, aggregate metrics. The Article also briefly outlines possible tax policy reforms to reduce fiscal impoverishment caused by income taxes, sales taxes, and property taxes.

The Article also considers how an awareness of fiscal impoverishment should guide evaluation of broad reform proposals. In particular, it considers the adoption of broad-based, regressive tax instruments--such as a federal value-added tax (VAT)--in order to fund expanded redistribution. (27) The Article urges caution among those who advocate adopting regressive taxes for progressive ends. Increasing regressive taxes in the United States may worsen fiscal impoverishment even despite increased progressive spending, especially given U.S. policymakers' tendency to deny support to certain groups. (28) While such broad-based reforms are eminently worthwhile, policymakers should take care not to harm vulnerable households when...