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Our state continues to top the “Terrible 10” list of tax codes that ask the most of those with the least
Contact: Melinda Young-Flynn, Washington State Budget & Policy Center communications director, [email protected], 206.262.0973, x 223
October 17, 2018 – Despite the many ways Washington state takes prides in its spirit of innovation, it still ranks dead last when it comes to its tax code, according to a new study by the Institute on Taxation and Economic Policy (ITEP). Our state has the most upside-down tax code in the country, forcing people with the lowest incomes to pay 17.8 percent in state and local taxes as a percent of their income – while the state’s wealthiest residents pay just 3 percent.
The study, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” analyzes tax systems in all 50 states and the District of Columbia. Washington state leads the pack among the report’s “terrible 10” of inequitable tax codes, along with states like Texas, Florida, and Oklahoma. (Meanwhile, our western neighbors, Oregon, California, Idaho, and Montana, all rank among the top 15 most equitable states.)
Washington state is considered the worst in large part because of its heavy reliance on regressive forms of taxes – like sales and other excise taxes – that place an oversized share of the responsibility on people with low and middle incomes. Also putting us in last place: the lack of a state level Earned Income Tax Credit that puts money back into the pockets of hardworking but low-paid Washingtonians – in our state, it’s called the Working Families Tax Rebate. The ITEP report also notes that our state’s business and occupation (B&O) tax is regressive. Although it’s nominally paid by businesses, a large portion of B&O taxes act as hidden sales taxes on consumers in the form of higher prices on goods and services. (See ITEP’s Washington state fact sheet for more details.)
“The wealthiest people and corporations have benefited most from our state’s booming economy,” says Budget & Policy Center Associate Director of Fiscal Policy Andy Nicholas. “Meanwhile, hardworking people with lower and middle incomes are having a hard time keeping up with our state’s skyrocketing cost of living. It’s not unreasonable to ask the highest-income residents, who have some of the lowest state and local tax rates in the nation, to pay a little more to support our communities.”
State and local tax policies are creating an even larger divide among people with the most and those with the least. Our tax code that takes a very large bite out of the budgets of households with lower incomes makes it harder for many people to afford basic needs. Further, because of historically inequitable policies designed to exclude people of color from opportunity, Washington state’s tax code is especially harmful to many communities of color.
“Washington cannot be complicit in the way our tax code works to punish poor people and communities of color,” says Sameth Mell of the Coalition for Immigrants, Refugees, and Communities of Color. “We must continue to work together for reform to a system that is long overdue, and make sure that we raise resources equitably for our state and future generations.”
Another issue with our state tax code is that continual tax cuts for the wealthy and corporations funnel money out of our communities – from things like schools, parks and public spaces, and emergency response services. If we fail to address this problem in our tax code, it’s going to become increasingly harder each year for the legislature to ensure the state budget can cover the public services that we all rely on in our state.
“State lawmakers have control over how their tax systems are structured,” says Meg Wiehe, deputy director of ITEP and the lead author of the study. “They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”
In Washington state, those policy solutions include enacting and funding a modernized Working Families Tax Rebate and removing wasteful tax breaks that mostly benefit the very wealthiest households, like the one on capital gains.
For more, read the Budget & Policy Center’s analysis on the ITEP rankings, “Unacceptable. Washington still has the nation’s most inequitable state tax code.“