If you're a typical Joe Blow, you're paying a much bigger percentage of your income in taxes if you live in a state that lacks a graduated income tax and relies heavily on consumption taxes.
In every state in the United States, poorer residents pay a higher percentage of their income to state taxes than the wealthiest residents.
But there are some states where the tax system is so lopsided in favor of their wealthier residents, they’ve earned a place on the Institute on Taxation and Economic Policy’s “Terrible Ten” list, a ranking of the top 10 states with the most unfair taxes for average Americans. The report by ITEP, a nonprofit, nonpartisan institute, states:
These “Terrible Ten” states tax their poorest residents — those in the bottom 20 percent of the income scale — at rates up to seven times higher than the wealthy. Middle-income families in these states pay a rate up to three times higher as a share of their income as the wealthiest families.
In Washington and Florida, the states with the most regressive state and local tax systems, average Americans pay as a share of their income more than 400 percent what the wealthiest 1 percent of residents paid as a share of their income.
“The absence of a graduated personal income tax and over-reliance on consumption taxes exacerbate this problem,” the report said.
Meg Wiehe, state tax policy director at ITEP, told 24/7 Wall St. that in most states, “tax distribution looks very much like a staircase going down, where as your income goes up, your effective tax rate goes down.”
So, why should you care about the unfairness of other states’ tax systems? There are both moral and practice reasons. Experts have identified the ever-increasing wealth gap in the United States as one of the biggest threats to the U.S. economy.
In addition, “Unfair tax systems not only exacerbate widening income inequality in the short term, but they also will leave states struggling to raise enough revenue to meet their basic needs in the long term,” the report noted.
Here are the states with the worst taxes for the average American:
- South Dakota.
Click here to see how your state ranks when it comes to the fairness of its tax system.
According to the ITEP report, my home state of Montana has one of the fairest state and local tax systems in the country. But the report is also quick to point out: “every single state and local tax system is regressive and even these states that do better than others have much room for improvement.”
How does your state rank when it comes to taxing average Americans? Share your comments below or on our Facebook page.
At the federal level, tax rates are graduated for different income levels, but the very richest people and corporations have access to loopholes that average Americans do not. Watch this video to learn more: