One theme that is consistently repeated in economic development circles is that states with lower taxes tend to be those that do best economically. It turns out that might not be as hard and fast a fact as it is assumed to be. The Institute on Taxation & Economic Policy just released a study that look at the tax burdens on households state by state, focusing on how that tax burden is shared across the income distribution (i.e., bottom 10% of earners, bottom 10-20%, etc.).
The report measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia. It discusses state tax policy features and includes detailed state-by-state profiles providing essential baseline data for lawmakers seeking to understand the effect tax reform proposals will have on constituents at all income levels.
The findings are a little surprising:
. . .[The] report concludes that all states have regressive tax systems that ask more from low- and middle-income families than from the wealthiest. It also finds:
– The average overall effective state and local tax rates by income group nationwide are 11.1 percent for the bottom 20 percent, 9.4 percent for the middle 20 percent and 5.6 percent for the top 1 percent
– Ten states with the most regressive tax systems are: Washington, Florida, South Dakota, Texas, Illinois, Tennessee, Arizona, Pennsylvania, Alabama and Indiana.
– States praised as “low tax” are often high tax states for low and middle income families.