A regressive tax is one that takes a larger percentage of the income of low‐income people than of high‐ income people. The Institute on Taxation and Economic Policy (ITEP) has concluded Washington State has the most regressive tax system in the country. According to their most recent report, published in 2009 based on 2007 data, the 20% with the lowest incomes in Washington pay 17.3% of their income in state and local taxes, compared to 10.8% for the middle group and 2.6% for those in the top 1%.
What’s included in the calculations of percentage of income paid in state/local taxes?
In addition to general sales tax, people pay taxes on gas, tobacco, alcohol, and utilities. Individuals also pay many taxes indirectly that are also included in the total. Even if someone rents, landlords include the cost of property taxes in the rent, and businesses pass on the part of the cost of their taxes in prices.
Why are the rates so low for the top income group?
Taxes based on consumption almost inevitably fall most heavily on low and moderate income people. Even though the wealthy buy more goods at higher prices than low income people do, there is simply a limit to how much a household can consume. High income people also spend much more on services that are generally not subject to sales tax. Low and moderate income people routinely spend almost all of their income, while the wealthy routinely do not.
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