IN MOST STATES, STATE AND LOCAL TAX SYSTEMS WORSEN INEQUALITY

Forty-five states have regressive tax systems that exacerbate income inequality. When tax systems rely on the lowest-income earners to pay the greatest proportion of their income in state and local taxes, gaps between the most affluent and the rest of us continue to grow.

The ITEP Tax Inequality Index measures the effects of each state’s tax system on income inequality by assessing the comparative impact a state’s tax system has on the post-tax incomes of taxpayers at different income levels. Essentially, it answers the following question: Are incomes more equal, or less equal, after state taxes than before taxes?

For example, consider this scenario: if taxpayers in the top 1 percent are left with a higher percentage of their pre-tax income to spend on their day-to-day living and to save for the future than low- and middle-income taxpayers, the tax system is regressive and receives a negative tax inequality index score. This indicates that the income inequality that existed before the levying of state and local taxes has been made worse by those taxes. On the other hand, states with slightly progressive tax structures have positive tax inequality indexes. This means that after taking state and local taxes into account incomes are no less equal than they were before taxes; and tax systems in those states, at the very least, did not worsen income inequality.

 

ITEP Tax Inequality Index
States in order of rank from least equitable to more equitable
1 Washington	14 Louisiana	27 Georgia	40 Utah
2 Texas	15 Hawaii	28 Missouri	41 Oregon
3 Florida	16 New Hampshire	29 Connecticut	42 Maryland
4 South Dakota	17 North Dakota	30 Massachusetts	43 Montana
5 Nevada	18 Alabama	31 North Carolina	44 New York
6 Tennessee	19 New Mexico	32 Rhode Island	45 Maine
7 Pennsylvania	20 Arkansas	33 Virginia	46 New Jersey
8 Illinois	21 Iowa	34 Wisconsin	47 Minnesota
9 Oklahoma	22 Michigan	35 Colorado	48 Delaware
10 Wyoming	23 Kansas	36 Nebraska	49 Vermont
11 Arizona	24 Mississippi	37 West Virginia	50 District of Columbia
12 Indiana	25 Kentucky	38 Idaho	51 California
13 Ohio	26 Alaska	39 South Carolina

NOTE: See Appendix B for detailed ITEP Tax Inequality Index and Methodology for more information.