A new report from the Institute on Taxation and Economic Policy provides an important distributional analysis of the taxes in all 50 states and the District of Columbia.1 Measuring the effective state and local tax rates by income groups, the report assesses tax fairness, providing key information to policymakersand taxpayers. Among the findings2 are:
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The vast majority of state and local tax systems are inequitable and upside down. They take a much greater share of income from low-and-middle-income families
than from the wealthy, caused largely by the absence of a graduated income tax in many states and too great a reliance on consumption taxes. -
The lower a family’s income, the higher their effective state and local tax rate. On average, state and local rates for thelowest-income fifth of households—the bottom 20 percent—are more than 50 percent higher than the top one percent of households: 11.4 percent as compared to 7.4 percent.
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Tax structures in 45 states exacerbate income inequality. They make incomes more unequal by collecting proportionally more taxes from poor families than wealthy ones. Only five states— none in the Gulf South—and the District of Columbia makeincomes slightly more equitable after taxes.
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In the most regressive “terrible 10” states, the lowest-income 20 percent of families can pay as much as four-to-six times more of their income than do their their wealthy counterparts. This includes Texas and Florida.3 Many of these states rely heavily on sales and excise taxes, while the least regressive states are characterized by a progressive income tax which raises, on average, more than one-third of state revenue.