We're Number 1! (But Not in A Good Way)

Updated January 31, 2013:  Income ranges were added to the graph.

While most state tax systems take a larger bite out of lower-and middle-income family budgets than those of high-income households, this gap remains larger in Washington state than any other state. The latest version of the “Who Pays?” report from the Institute on Taxation and Economic Policy (ITEP) finds that, once again, Washington state has the most upside down, or “regressive” tax system in the nation. 

The graph below shows that state and local taxes amount to nearly 17 percent of household incomes among the poorest fifth Washingtonians, those earning less than $20,000 per year. Taxes paid by the middle fifth of households ($38,000 - $60,000) account for a bit more than 10 percent of family incomes. But among the richest 1 percent (more than $430,000 per year) of Washingtonians – those who have benefited the most from economic growth of the past four decades, and who suffered least during the Great Recession – state and local taxes amount to less than 3 percent of families incomes.

In addition to the latest edition, Washington state held this dubious honor in each of the three previous editions of Who Pays?. And, we will continue to top the “terrible ten” list of most regressive state tax systems until policymakers act to remedy the situation. The report finds the lack of a state income tax coupled with an excessive reliance on sales taxes to be the major culprits behind Washington’s deeply flawed and inequitable revenue system.

ITEP’s findings are broadly consistent with results of a study performed last summer by Washington state’s own Office of Financial Management. That study found that the bottom 10 percent of Washingtonians pay up to 23 percent of their incomes in state and local taxes while the richest 10 percent pay only 5 percent.

We have put forward a number of reforms – including full funding for the Working Families Tax Rebate and a capital gains excise tax -- that would create a more robust and equitable revenue system for all Washingtonians.

Read the full ITEP report here.

More analysis on Washington state’s outdated revenue system will be coming in the weeks ahead. Stay tuned to schmudget.