Via Goldy, the Institute on Taxation and Economic Policy has a new analysis of the distribution of the tax burden (pdf) in each of the 50 states. It turns out, to almost no one’s surprise, that Washington has the most unfair tax system in the nation.
Check out this table from page 2:
It’s not even close. No other state puts nearly such a high tax burden on its poor. It’s the result of a tax structure that includes no income tax, but does rely heavily on property taxes and a high sales tax.
I have to say, however, that I kind of hate the way this issue gets talked about. Not only do lots of folks get wrapped around the axle over any discussion of taxes, but progressives mostly do a horrible job of talking about It.
Problem number one, in my judgment, is using the word “regressive.” It’s an economist’s word that has no meaning for most people and therefore requires an explanation that quickly becomes cumbersome and tangled. The problem with regressive taxes is that they are unfair. And it’s really a pretty basic issue of fairness: poor families spend twice as much of their income on taxes as the middle class. And middle class families spend far more of their income on taxes than the rich. It’s not an issue of “regressivity,” it’s an issue of fairness.
As Washington braces for another huge budget shortfall, elected officials have an opportunity to make some lasting repairs to the state’s broken tax system. One solution, proposed by Marilyn Watkins at the Economic Opportunity Institute among many others, is to start up a state income tax — though it might be levied only on the rich and offset by reductions in sales tax.
Even if it didn’t generate additional revenue, an income tax would help stabilize the state’s revenue portfolio even while is softened the current unfairness. As things currently stand, the state government’s response to budget shortfalls has been to compound the unfairness in the tax system by slashing funding for low-income health care and other basic safety nets. In fact, it’s hard to imagine a more vicious fiscal plan than the one that Washington lawmakers have embraced up until now.
Steve Hamm
Even “unfair” is inappropriate. Most folks should know there’s no such thing as “fair.” Washington State’s current tax system is worse than unfair. It’s OPPRESSIVE to both the poor and small businesses. Even after the father of one of the richest men in the world has said we need an income tax, the knee jerking public in this state make the term “income tax” a suicide mission for any politician who would offer it.
E.X.
Except: When an income tax is imposed, the only “fairness” is that the *ratio* will be improved btw the poor and the top 1%. Or did you think the sales taxes would *drop*? Har har. 🙂
Barbara
I am definitely one of those folks who can’t get her head around the tax issue….Maybe I am misunderstanding something, but it seems to me that taxing consumption is good for the environment. I am a purposeful light-consumer whenever possible, so I think sales tax is pretty fair: Buy less crap, pay less tax. Yes, we shouldn’t tax healthy, whole foods as much as junk food, and basic necessities like medicines and such shouldn’t be taxed at all. That would make it more fair in terms of percentage of income spent on taxed goods, if people spend their money healthily. I’m not feeling all that sorry for someone who has to pay taxes on Doritos and beer,whatever their income. But we already pay way too little for products because we don’t pay for their true environmental and social health costs. Not that income tax wouldn’t solve the fairness issue. We would have to build a loophole free income tax system, though, since the highest income earners already get huge breaks with high-end accountants and tax shelters on their sides. If we could guarantee good services (like universal health care and environmental protection regs with some teeth), I would happily pay a chunk of my income to taxes. As the system stands now, though, I don’t feel my tax dollars would be anything but thrown away on pork and bureaucrats. The other question is property taxes…do the poorest own homes and pay property tax into the system directly (not through rents split among multiple units)? How does WA compare with other states on those tax rates? If we had an income tax, I would hope our property taxes would go down? Just a thought…
Jeanne Large
I own and manage two residental rentals, a house and a duplex. Do I pay property taxes? Yes. Where do I get the money to pay the taxes? From the rent. When taxes go up what do I do? Raise the rent. When property values and taxes go down, do I lower the rent? No. Before I pay my federal income taxes, I deduct the property taxes from the rental income because it’s a “business expense”. Taxing consumption would probably be a good thing if we taxed all consumption and if everyone had the same buying power. But we don’t. We tax the purchase of things like clothing, shoes and home repair products and sales taxes are the same rate, regardless of individuals’ ability to pay. When low and middle income parents buy their children shoes, they pay the same rate of sales tax as Bill Gates does when he buys his children shoes. When those of us with money buy stocks or bonds, we pay no sales tax. When we make income from capital gains, we pay only 15% federal and no state tax. We used to pay a car tab fee based on the value of the car. Now we all pay the same flat fee each year whether we’re driving a Mercedes or a clunker. So, the clunker owner, probably lower income, pays a much larger % of the value of the car and his income toward this tax. Another unreasonable tax in Washington State is the B & O….charged against the gross receipts of a business…not the net. This tax is really tough on small businesses, particularly when they are getting started or when markets are tight and profit margins narrow.During tough economic times when people spend less, our state, county and local tax revenues go down fast. “Over responsive to downturns” I think it’s called. When we have 10% unemployment, the 90% of us with jobs continue to have no state income tax while our government is less able to provide needed public education and services. Unemployed and low wage residents have fewer public services and safety nets. This just doesn’t make sense. We need to educate the electorate about our out of whack state tax system. We need to tell our state legislators that we will vote for them if they revise the tax system and we will not if they don’t.
Max
I recently moved to Washington and discovered a very bizarre tax law. The Washington Department of Revenue wants us to prove we paid sales tax on all of our vehicle. Because our former state (Idaho) had a lower sales tax (6%), we are getting charged the difference to re-register our vehicle. I fixed up our small sailboat since we purchased it, so DOR wants it surveyed and they’ll determine how much taxes we owe based on the imporoved valued. It doesn’t matter to them that we paid Idaho taxes on the materials and labor to repair our boat.
Max
I recently moved to Washington and discovered a very bizarre tax law. The Washington Department of Revenue wants us to prove we paid sales tax on all of our vehicle. Because our former state (Idaho) had a lower sales tax (6%), we are getting charged the difference to re-register our vehicle. I fixed up our small sailboat since we purchased it, so DOR wants it surveyed and they’ll determine how much taxes we owe based on the imporoved valued. It doesn’t matter to them that we paid Idaho taxes on the materials and labor to repair our boat.
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