Life is not always fair — especially when it comes to taxes. Many people would agree that the nation’s tax code is a bottomless pit of politics and controversy that tends to get deeper with each election. On a local level, tax debates typically pit red states against blue states in the name of ultimate tax fairness. However, what does a fair tax system look like and which states actually have the least fair tax systems?
Americans generally believe that higher income households should pay a greater percentage of their incomes in taxes than lower income households. Yet the exact opposite occurs. The Institute on Taxation and Economic Policy (ITEP) finds the nationwide average effective state and local tax rates by income group are 10.9% for the poorest 20% of individuals and families, 9.4% for the middle 20%, and 5.4% for the top 1%. This means the poorest Americans are paying two times more of their income in taxes than the top 1%.
Paying more with unfair tax systems
In the 10 states with the most unfair tax structures, the bottom 20% pay up to seven times as much of their income in taxes as their wealthy counterparts. A heavy reliance on sales and excise taxes are characteristics of the most unfair state tax systems. In fact, six of the 10 most regressive states derive roughly half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of roughly one-third.
“The bottom line is that every state fails the basic test of tax fairness,” explains the report. “The District of Columbia is the only tax system that requires its best-off citizens to pay as much of their incomes in state and local taxes as the very poorest taxpayers, but middle-income taxpayers in DC pay far more than the top one percent. In other words, every single state and local tax system is regressive and even the states that do better than others have much room for improvement.”
Let’s take a look at the 10 states with the least fair tax systems. Do you live in one?