Most states tax their middle- and low-income families far more heavily than the wealthy, according to a new study by the Institute on Taxation & Economic Policy.
Nationwide, the study found that middle- and low-income non-elderly families pay a much higher share of their income in state and local taxes than the wealthy. The average state and local tax rate on the wealthiest 1 percent of families is 6.4 percent before accounting for the savings from federal itemized deductions. After the federal offset, the effective tax rate on the wealthiest 1 percent is a mere 5.2 percent.
The average tax rate on families in the middle 20 percent of the income spectrum is 9.7 percent before the federal offset and 9.4 percent after almost twice the effective rate that the richest people pay. The average tax rate on the poorest 20 percent of families is the highest of all. At 10.9 percent, it is more than double the effective rate on the very wealthy.
The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income, said Matthew Gardner, lead author of the study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.
Ten states Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada and Alabama are identified in the study as particularly regressive. These Terrible Ten states ask poor families those in the bottom 20 percent of the income scale to pay almost six times as much of their earnings in taxes as do the wealthy. Middle-income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families.
The report identifies several factors that make these states more regressive than others. The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate. These states typically have an especially high reliance on regressive sales and excise taxes, and they usually do not provide targeted low-income tax credits such as the Earned Income Tax Credit.
The least regressive state tax systems are considered to be in Delaware, the District of Columbia, New York and Vermont.