Building an Economy that Works for Everyone

Chart of the week: Why Washington’s taxes are so inequitable

Washington has the most regressive tax structure of any state, taxing the lowest earners at 17.3%, while the top 1% pay just 2.6% of their incomes in taxes. How did we get here?Percent income paid in state and lcoal taxes, non-elderly 2007

Well, for one thing, lower- and middle-income people spend a greater percentage of their income on items that are taxed directly — such as gasoline, alcohol, and non-food consumables — than do wealthy people.

But figuring out who is really paying a tax isn’t as simple as calculating sales tax on purchases, or determining the value of land and the associated property taxes. Why? Because often,  individuals pay taxes on goods and services that are indirectly included in the total:

  • Example 1: Lower- and middle-income people are more likely to rent homes or apartments than buy, and most landlords pass on the cost of property taxes to renters.
  • Example 2: Washington’s business and occupation (B&O) tax is levied on gross receipts rather than net profits, and is calculated as a sales tax by many economists and the Federation of Tax Administrators. Businesses typically pass the cost of the tax directly on to consumers.

This chart shows the percentage of income paid in taxes by income group in 4 states, as well as the U.S. average. Washington is dead last in the rankings — and for good reason. The blue bar is the lowest 20% of earners, the red bar is the middle 20%, and the green is the top 1% of earners.

Learn more about these calculations and EOI’s analysis of in the fact sheet: I-1098: Fixing the most regressive tax system in the country

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