There’s no mystery about how states can make their tax systems more equitable, policy analysts say. He developed a painful stomach ulcer that caused him to stop working altogether. They relied on home remedies such as hibiscus tea as well as a small supply of the diabetes pill Metformin to manage his Type 2 diabetes instead. Her husband, who found occasional work on a farm, went without insulin for three months so they could pay the property tax. When the time came to pay the first installment of her property taxes, there was no flexibility left in the family’s budget.īaltazar, her husband Rafael and adult daughter Kary had all lost their full-time jobs and couldn’t get unemployment benefits. With no state income tax, Washington’s average state and local sales taxes of more than 9% are among the nation’s highest. The organization ranked Washington as having the most regressive tax system in the nation, for instance, while judging neighboring Oregon’s system as one of the most equitable. In a 2018 study, ITEP found that tax structures vary widely even in states with similar costs of living and demographic makeup. That’s often the case with school funding. Poor people handing over a higher percentage of their income in taxes and fees to fund state and local services often end up with less in return. How a state chooses to collect money impacts not only who pays more but also how much revenue it generates to fund public services. These places lean especially heavily on sales tax and other revenue options that make lower-income people contribute more. But some choose to tax everyone at the same rate, rather than following the federal model of increasing up the income scale.Īnd some states, like Washington, don’t tax income at all. Income tax is the main tool states have to counteract that. The poorer you are, the greater the share of your resources the sales tax gobbles up. Spend $50 on clothes for your kid, and you’ll pay the same sales tax as anyone else in your area, regardless of income. Unlike the federal government, almost all states collect them. “That strikes me as profoundly unfair.”Ī key reason: sales and other consumption taxes. “We're asking people to fund government programs even when they can't afford basic needs, like food and shelter,” Ariel Jurow Kleiman, an associate professor at Loyola Law School in Los Angeles who focuses on tax law and policy, said via email. But the Internal Revenue Service doesn’t force low-income residents to shoulder the biggest relative burden. The federal system also increases inequality, with legal loopholes giving very high-net-worth people massive tax breaks. The higher tax bills increase the odds of what Baltazar feared - losing your home.Īll this means state and local tax systems that could help address America’s widening economic inequality are instead making the problem worse. Studies show assessors tend to inflate property tax assessments of low-priced properties, disproportionately owned by Black and Latino people. Undocumented immigrants contribute billions of dollars in state and local taxes, according to estimates by ITEP and other groups, but aren’t eligible for many tax-funded services or tax rebates. Economists call that upside-down approach “regressive.” Nationwide, the share lowest-income earners pay to state and local taxes is 54% higher than what top earners pay, according to the Institute on Taxation and Economic Policy.Īnd those policies hit communities of color the hardest. The lowest-earning residents in Washington state, where Baltazar lives, pay almost 18% of their annual incomes in state and local taxes, while the wealthiest chip in 3%.Īll but a handful of states make poor residents contribute a greater share of their income to taxes than wealthy people do.
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