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Wash. state has most unfair tax structure in nation, report finds

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WASHINGTON - A new report has found that Washington state has the most regressive tax structure in the nation - with the poorest residents here paying nearly six times as much of their income in taxes as the wealthy.

"Washington has the most unfair state and local tax system in the country," says the report released this week by the Institute on Taxation and Economic Policy. "Incomes are more unequal in Washington after state and local taxes are collected than before."

The study, entitled "Who Pays?", found that Washington's lowest earners pay 17.8 percent of their income in state and local taxes, compared with 3 percent for the highest earners.

By comparison, in neighboring Oregon the lowest earners pay 10.1 percent of their income in state and local taxes, compared with 8.1 percent for the wealthiest earners.

Washington state's tax inequality makes it No. 1 in the institute's "Terrible Ten" - those states with most unfair tax structures. No. 2 is Texas, followed by Florida, South Dakota, Nevada, Tennessee, Pennsylvania, Illinois, Oklahoma and Wyoming.

The state with the fairest tax structure is California, according to the study.

In Washington state, the unfair burden is due to a tax structure that benefits the rich at the expense of the poorest, according to the institute's report.

Specifically, the lack of a personal income tax and a high reliance on sales tax ensures that inequality will persist until some change is made, the study says. That's because lower income earners tend to spend more - or all - of their income on goods and services, while the top earners are able to put comparatively more of their income into investments and savings.

And the situation is likey to persist because the Washington state constitution forbids establishment of a state or local income tax.

Other contributing factors to Washington's tax inequality include reliance on a gross receipts tax in lieu of a corporate profits tax, and a failure to provide a property tax "circuit breaker" credit for low-income taxpayers, the study found.

The report, released this week by the Institute on Taxation and Economic Policy, is based on laws in effect as of September 2018 and income data from 2015.

Other findings of the study:

- Washington state's lowest earners spend 13.3 percent of their income for sales and excise taxes, on average, compared with 1.7 percent for top earners.

- The state's poorest pay 4.5 percent of their income on property taxes, compared with 1.3 percent for the highest earners.

- Middle income households - which earn between $70,000 and $116,000 per year - spend 9.2 percent of their income on state and local taxes.

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