Regressive Tax

Americans Have No Idea How Regressive Their State and Local Taxes Are

By Danny Vinik

When policymakers discuss reforming the U.S. tax system, they generally are referring to the federal tax code. One of the great things about the federal income tax is that it is progressive. The more money you make the higher tax rate you pay, up to a top rate of 39.6 percent. And Americans generally approve of this system; they think the rich should pay more in federal income taxes.

Those feelings aren’t limited to federal income taxes. The vast majority of Americans—both liberals and conservatives—believe that state and local taxes should also be progressive. That’s the finding of a new report released by WalletHub Monday. The researchers surveyed 1,050 Americans on what they thought the combined rate of state and local taxes should be at various income levels. Not surprisingly, liberals want the rate structure to be a bit more progressive than conservatives do, but their responses were relatively similar:

WalletHub

Given this relative agreement, you would expect the actual rate structure of state and local taxes to be somewhat similar. But that’s not the case. In fact, state and local taxes are extremely regressive, with the poor paying a much higher rate than the rich do. WalletHub cites a report from the Institute for Taxation and Economic Fairness that determined the combined rate of state and local taxes for different income levels.

Institute for Taxation and Economic Fairness

Policymakers, particularly those in Washington, spend a lot of time talking about reforming the federal tax code. This is a reminder that for many Americans, local and state taxes—along with the payroll tax which rarely comes up in tax reform—are larger burden than the federal income tax.