TURES COLUMN: Mirror, mirror on the wall, which tax system is the fairest of them all?
Published 11:30 am Saturday, September 17, 2022
A non-partisan, non-profit tax policy organization made headlines by noting that most Californians pay a smaller share of their income in taxes than they do in Texas. I decided to investigate who pays a greater share of their income in taxes, to see whether Southern states like Florida has residents paying less of their income in taxes than a Northern states like Delaware.
If you go to a group like the Tax Foundation, they provide a map and a rating of state and local tax burdens, making the argument that Texas is the sixth best for low taxes (behind #1 Alaska), while California ranks #46. But state and local taxes affect us differently by how much we make. Some states have more progressive policies (the more you make, the more you pay) while others are incredibly regressive, where the poor pay perhaps less, but a much greater share of their own income in taxes.
That’s where the Institute on Taxation and Economic Policy (ITEP) steps in, to assess what percentage of your income you’re really paying in each state, enabling us to see how the lower class, middle class, and upper class must pay of their income. Yahoo Finance reports on ITEP data to show how those in the bottom 20% of income in Texas pay an estimated 13% of their income in state and local taxes, as compared to 10% of the lowest 20% in Texas.
It’s a similar story for the middle class; In California, they pay 8.9 percent of their income in state and local taxes, less than the 9.7% the middle income pays in Texas in state and local taxes. Only the rich do better, where they pay almost four times less of a share of income in state and local taxes in Texas, as compared to the highest earners in California.
I did a similar study on Delaware and Florida. In the first state, the poorest 20% pay a 5.5% share in family income in state and local taxes, a number that rises to 5.6% for middle income earners, and 6.5% for the top 1%.
Head down to the Sunshine State and you’ll discover that the poorest 20% pay 12.7% of their family income in state and local taxes, while the middle income 20% pay 8.1 percent share of family income in state and local taxes. The richest 1% pay only 2.3 percent of their family income in state and local taxes in Florida.
In fact, ITEP rates Florida the third most regressive state (behind #2 Texas) for state and local taxes, while Delaware is the third least regressive state, behind #51 California.
You’ll find Tennessee in that top 10 for regressive tax burden, with Alabama at #18. Iowa comes in at #21 for regressive tax burden. Georgia occupies the 27th spot, ahead of Connecticut at #29 ten spots ahead of South Carolina.
Critics claim that ITEP is a liberal group, but the tax policy organization rates Washington, a strong blue state, as the most regressive, placing blue states Nevada and Pennsylvania (seventh most regressive) in the top ten for states that are the least equitable. In the next tier you’ll find Arizona and New Mexico, along with Hawaii and New Hampshire.
So if you’re trying to decide where to live, and calculating tax burdens, don’t just look at the raw numbers. Also see how they affect you based upon how much you make in income.