Regressive Taxes

A regressive tax is a tax that takes more from the lower and middle income brackets than it does from the highest income earners. Washington State’s tax structure is considered regressive for a plethora of reasons. One of the main reasons is that Washington does not have a personal income tax (which would take into consideration the amount that each individual makes), instead, Washington relies on other forms of taxation that do not take income disparities into account.

Forty-one states have an income tax structure which accounts for a majority of state funding. Washington, Nevada, Alaska, Wyoming, South Dakota, Texas, and Florida do not have a personal income tax. Not surprisingly, five of the seven states are ranked as having the most regressive taxing structures in the United States.

Personal income taxes are less regressive since the taxes are based on how much each individual makes, rather than a flat, across-the-board tax. These states derive between half and two-thirds of their tax revenue from these taxes, compared to the national average of 35%. Unfortunately, Washington comes in #1 (or last place, however you want to look at it) for having the most regressive of taxes. Washington citizens that fall within the lower and middle economic bracket pay 17.3% of their income in taxes, while the highest income earners pay merely 2.6%.

Another extremely regressive tax is the excise tax (or sales tax) because the same rate is imposed on everyone, regardless of discrepancies in income.  Washington State also relies heavily on excise tax revenue for state funding. For more information, check out these past posts on excise taxes in Washington.

Most states tend to receive the bulk of their funding support from the lower and middle income groups, leaving the highest-income earners to pay for a considerably smaller proportion.

The higher the income your household has, the less of their overall income goes towards taxes, whereas the lower income households have to pay a significantly higher proportion of their annual income in taxes. The Gates Commission report shows that a family that makes $150,000 a year pays 4.4% of that in taxes. A family that makes under $20,000 pays 15.7% of it in taxes. Not only is the lower income family clearly paying a higher percentage than the middle and upper-income bracket, but paying the taxes is so much more of a struggle for the lower income family without them being disproportionally taxed.

Continuing to tax our citizens in this manner is not sustainable. What kind of solution(s) do we need to fix this problem? What can we do as citizens to engage and initiate this kind of conversation so that we can begin to work towards a solution?