A new report on state tax systems found that Washington state had the most regressive tax system in the country. The Washington D.C.-based Institute on Taxation and Economic Policy (ITEP) released the report yesterday. Combining state and local property taxes as well as sales and excise taxes, the data shows a greater disparity in tax rates in Washington state than anywhere else.

  

 

Nationally, gaps between tax rates as a percent of income exist across the board. On average: the bottom 20 percent of income earners pay 11.1 percent in taxes, the middle 20 percent pay 9.4 percent, and the top one percent pay 5.6 percent. If averages are taken here in Washington state, not only is there a wider gap between what income groups pay, but additionally, the numbers themselves are worse locally for low-income people and better locally for rich people. The bottom 20 percent pays 17 percent; the middle 20 percent pays 10 percent; the top one percent pays a mere 2.8 percent in taxes.

This means in our state, middle-income families pay up to four times as high a share of their income as the wealthiest families, and low-income families pay as high as six times as much in taxes. The bottom 20 percent in Washington pay 7 percent more than national average, the middle 20 pays 0.6 percent more, and the top one pays 2.8 percent less (half of the national average). Bottom line: the range between the tax rates of the bottom 20 percent and top one percent nationally is 5.5 percent, while in Washington the range is 14.2 percent. Consequently, Washington has landed the top spot as the most regressive tax system in the country.  

In our state, middle-income families pay up to four times as high a share of their income as the wealthiest families, and low-income families pay as high as six times as much in taxes."The system is failing to support things that all Washingtonians care about, such as education, health care, the environment and policies to help families find and keep a job. That's not right," said Remy Trupin, executive director of the Washington State Budget and Policy Center, a local lefty think tank. In the effort to create a "more robust and equitable revenue system," the Washington State Budget and Policy Center has put forward reforms and recommendations such as full funding for the Working Families Tax Rebate (which refunds a portion of the state retail sales tax to households that qualify for the federal Income Tax Credit) and an excise tax on capital gains.

Trupin's counterpart, Paul Guppy, Vice President for Research, at the conservative local think tank, the Washington Policy Center, agrees that Washington state has a highly regressive tax system, but disagrees with Trupin's recommendations. Instead, he suggests two solutions. "First, reduce the sales tax rate. This would reduce the regressiveness of sales tax as a percent of income, by reducing the impact. Secondly, we need to restructure the business and occupation tax and instate a Single Business Tax that would remove the complexity and allow business owners to legally chose their own method of taxation."