Who Pays? State and local tax systems are not equal

Forty-five states have regressive tax systems that exacerbate income inequality, according to the Institute on Taxation and Economic Policy (ITEP). When tax systems rely on the lowest-income earners to pay the greatest proportion of their income in state and local taxes, gaps between the most affluent and the rest of us continue to grow.

These are findings from the sixth edition of Who Pays: A Distributional Analysis of the Tax Systems in All 50 States. The report confirms that no two state tax systems are the same and includes a detailed analysis by state and baseline data for policy development. Highlights from the report excerpted below: 

• Most State and Local Tax (SALT) systems are inequitable and upside-down, taking a much greater share of income from low- and middle-income families than from wealthy families.
• The lower one’s income, the higher one’s overall effective SALT rate. The lowest-income 20% of taxpayers face a SALT rate more than 50% higher than the top 1% of households. 
• Tax structures in 45 states exacerbate income inequality by making incomes more unequal after collecting SALT.
• In the 10 states with the most regressive tax structures, the lowest-income 20% pay up to six times as much of their income in taxes as their wealthy counterparts.
• The most regressive state tax systems rely heavily on sales and excise taxes.
• The least regressive state tax systems are characterized by progressive graduated income taxes. States with the most equitable SALT systems derive, on average, more than one-third of their tax revenue from income taxes, which is above the national average of 27%.
• States commended as low-tax are often high-tax for low- and middle income families. The 10 states with the highest taxes on the poor are Arizona, Florida, Hawaii, Illinois, Indiana, Iowa, Oklahoma, Pennsylvania, Texas, and Washington.

States in order of rank from least equitable to more equitable (Source: ITEP)

1 Washington	14 Louisiana	27 Georgia	40 Utah
2 Texas	15 Hawaii	28 Missouri	41 Oregon
3 Florida	16 New Hampshire	29 Connecticut	42 Maryland
4 South Dakota	17 North Dakota	30 Massachusetts	43 Montana
5 Nevada	18 Alabama	31 North Carolina	44 New York
6 Tennessee	19 New Mexico	32 Rhode Island	45 Maine
7 Pennsylvania	20 Arkansas	33 Virginia	46 New Jersey
8 Illinois	21 Iowa	34 Wisconsin	47 Minnesota
9 Oklahoma	22 Michigan	35 Colorado	48 Delaware
10 Wyoming	23 Kansas	36 Nebraska	49 Vermont
11 Arizona	24 Mississippi	37 West Virginia	50 District of Columbia
12 Indiana	25 Kentucky	38 Idaho	51 California
13 Ohio	26 Alaska	39 South Carolina

See all findings at ITEP, Who Pays: A Distributional Analysis of the Tax Systems in All 50 States. 

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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