State and Local Tax Systems Disproportionately Burden Lower-Income Families

January 30, 2013 at 3:43 pm

We warned last week that a number of state proposals to swap their income taxes for sales taxes would be ill-advised.  Those proposals would only worsen tax systems that are already highly regressive, as a new report from the Institute on Taxation and Economic Policy (ITEP) shows.

In its study of the tax systems of all 50 states, ITEP found that every state taxes middle- and low-income families more than wealthy families:

No state requires their best-off citizens to pay as much of their incomes in taxes as their very poorest taxpayers must pay, and only one state taxes its wealthiest individuals at a higher effective rate than middle-income families have to pay.

The lack of a graduated personal income tax and an over-reliance on sales and excise taxes in some states makes this problem worse.  In four of the ten most regressive states, between half and two-thirds of their tax revenue comes from sales and excise taxes, compared to a national average of roughly one-third.

In the ten states with the most regressive overall tax systems, ITEP found that the bottom 20 percent pay up to six times as much of their income in taxes as their wealthy neighbors.  In Washington State — the most regressive state according to ITEP — the poorest 20 percent pay 16.9 percent of their income in taxes.  The richest 1 percent of Washingtonians, on the other hand, pay just 2.8 percent.

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More About Nicholas Johnson

Nicholas Johnson

Johnson serves as Vice President for State Fiscal Policy. You can follow him on twitter @NickCBPP.

Full bio | Blog Archive | Research archive at CBPP.org

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