The Center for Hunger-Free Communities

Solutions Based on Science and the Human Experience

How Fair is Our Tax System? Who Really Pays?

February 1, 2013
Event Date: 
February 1, 2013

The Institute on Taxation and Education recently released an analysis of the tax system in the US entitled “Who Pays? A Distributional Analysis of the Tax System in All 50 States.” 

The report assesses the fairness of each state’s tax system by measuring the state and local taxes as paid by different income groups as shares of their income.   The main finding of the report is that all states take a higher percentage of income from low- and middle-income families than from the wealthiest.

According to the report, the average overall state and local tax rates by income group nationwide are 11.1% for the bottom 20% of the population, 9.4% for the middle 20% of the population, and 5.6% for the top 1% of the population.  In ten states, rates were even worse than this average where the bottom 20% of the population can pay tax rates up to six times rate paid by their wealthy counterparts.

In looking specifically at consumption taxes, which include sales and excise taxes, poor families pay almost eight times greater a percentage of their income than wealthy families.  Since consumption taxes are set at a flat rate, the poor use a larger portion of their income to cover these taxes.  On average state, consumption taxes as a percentage of income are 7% for the low incomes, 4.6% for middle incomes, and 0.9% for the highest incomes.  Since purchasing food is one of the biggest expenses for low-income families, the report found that a sales tax on food is especially regressive.

There are some tax policies that help to lessen the effect the tax system has on the poor.  For example, the Earned Income Tax Credit (EITC) is a tax credit for low-income families that reduces the amount of taxes they owe, and could result in a tax refund for these families.  But only 24 states have enacted a state EITC, and some states that had the credit have reduced or eliminated it in recent years.

As our elected officials consider their budgets and tax reform proposals, it’s important for them to know and remember the disproportionate burden of state and income taxes on low-income families.

To read the entire report and to see how your state ranks click here.


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