Local Tax Burden Hits Low Wage Earners ; Analysis of State Systems Finds Poorest Pay Bigger Percentage Than Richest

By Cohen, Patricia | International New York Times, January 15, 2015 | Go to article overview

Local Tax Burden Hits Low Wage Earners ; Analysis of State Systems Finds Poorest Pay Bigger Percentage Than Richest


Cohen, Patricia, International New York Times


An analysis by the Institute on Taxation and Economic Policy ranked states by tax burden and concluded that the poorest have the biggest burden in local taxes.

When it comes to the taxes closest to home, the less you earn, the harder you're hit.

That is the conclusion of an analysis by the Institute on Taxation and Economic Policy that evaluates the local tax burden in every state, from Washington, labeled the most regressive, to Delaware, ranked as the fairest of them all.

According to the study, in 2015 the poorest fifth of Americans will pay on average 10.9 percent of their income in state and local taxes, the middle fifth will pay 9.4 percent and the top 1 percent will average 5.4 percent.

"Virtually every state's tax system is fundamentally unfair," the report concludes. "Unfair tax systems not only exacerbate widening income inequality in the short term, but they also will leave states struggling to raise enough revenue to meet their basic needs in the long term."

The trend is growing worse, said Meg Wiehe, state policy director at the institute, a nonpartisan research organization based in the nation's capital. Several states have adopted or are considering policy changes that further lighten the tax load on their wealthiest residents, she said.

States and localities have regressive systems because they tend to rely more on sales and excise taxes (fees tacked onto items like gas, liquor and cigarettes), which are the same rate for rich and poor alike. Even property taxes, which account for much of local tax revenue, hit working- and middle-class families harder than the wealthy because their homes often represent their largest asset.

The federal income tax system, by contrast, primarily taxes individuals at a graduated rate, and those who earn more pay a larger share. (The federal system also uses payroll taxes to raise large sums for Social Security and Medicare, dipping into the pockets of many low- and moderate-income Americans who pay little, if any, income tax.)

In the institute's "Terrible 10" states, the bottom 20 percent of earners pay up to seven times as much of their income in taxes as the top 1 percenters, the report says. These include Washington, where the poorest residents pay 16.8 percent of their income in taxes while the wealthiest sliver pays just 2.4 percent, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana.

Judgments about what makes a tax system fair, of course, vary widely. For the institute, fairness is equated with progressiveness. Some conservatives dispute that definition, however, and argue that lowering tax rates on business and the wealthy promotes economic growth, which in the long run lifts everyone's fortunes. That was the idea behind the tax revolution in Kansas ushered in by the Republican governor, Sam Brownback, in 2012. He reduced personal income tax rates while eliminating income taxes altogether for 190,000 businesses.

Despite a crippling budget shortfall, Governor Brownback has continued to defend his approach. "It takes time for it to work," he said last month.

The institute rejects such arguments, saying that these sorts of "trickle-down economic theories" have long been discredited. It also dismissed boasts by some states like Washington and Texas that taxes were low for everyone because they lacked an income tax. "These states' disproportionate reliance on sales and excise taxes make their taxes among the highest in the entire nation on low-income families," the report said.

Others have come to similar conclusions. …

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