According to a new report by the progressive think tank Institute on Taxation and Economic Policy (ITEP), as relayed in the Washington Post, state and local governments that are heavily reliant on sales and excise taxes, rather than income taxes, shift the economic burden onto low- and moderate-income taxpayers. At every level, those who work for modest wages come up against a tax structure written by and for the extremely wealthy, particularly in red states.
“On average, the poorest 20 percent of taxpayers spend 11.4 percent of their income on state and local taxes,” the report notes. “Which is 50 percent higher than the 7.4 percent average effective rate for the top 1 percent.” This disparity is driven, in part, by the combination of higher regressive consumption taxes paired with lower personal income taxes in state and local tax codes.
“Unlike every other income group, the top 5 percent of earners pay a smaller share of state and local taxes than their share of income,” the report notes. Moreover, most local and state tax laws, while not fully accountable for income inequality, are certainly exacerbating it; only California, Delaware, Minnesota, New Jersey, and Vermont have tax structures that help close the wealth gap. These taxes aren’t felt when you get your tax returns back—they accumulate slowly over filling your gas tank, shopping for food, and buying everyday necessities like diapers and bandaids. Read more