Washington state is a great place to live if you’re wealthy. But the state’s tax system — which does not have an income tax and is heavily reliant on sales taxes — isn’t too sweet if you’re poor.
That’s the conclusion of a new report issued this week by the Institute on Taxation & Economic Policy, which found that Washington has the “most regressive” tax system in the country. The poorest families in the state pay 16.9 percent of their total income in state and local taxes — compared to just over eight percent in neighboring Idaho and Oregon.
Washington is joined in what the report’s authors dub the “terrible ten” — described as states where the poor pay six times as much of their income in taxes as wealthy counterparts — by Florida, South Dakota, Illinois, Texas, Tennessee, Arizona, Pennsylvania, Indiana, and Alabama.
“We know that governors nationwide are promising to cut or eliminate taxes, but the question is who’s going to pay for it,” said Matthew Gardner, Executive Director of ITEP and an author of the study. “There’s a good chance it’s the so-called takers who spend so much on necessities that they pay an effective tax rate of 10 or more percent, due largely to sales and property taxes. In too many states, these are the people being asked to make up the revenues lost to income tax cuts that overwhelmingly benefit the wealthiest taxpayers.”
That’s an argument that Seattle venture capitalist Nick Hanauer has been making for years, noting that his tax rate and others in his wealth class (he was one of the original backers of Amazon.com and founded aQuantive) should be raised. Hanauer, along with Bill Gates Sr., led an effort in the state in 2010 to pass a measure that would have instituted an income tax on state residents who made more than $200,0000.
I-1098 was defeated with about 65 percent of the vote, including support from large segments of the tech industry which argued that not having an income tax was a competitive advantage in recruiting employees and new businesses.
Here’s the full report from the Institute on Taxation & Economic Policy: