2014’s Most & Least Fair State Tax Systems

2014’s Most & Least Fair State Tax Systemsmost overtaxed WalletHub

by John S Kiernan  Posted by WalletHub    late summer 2014.

 

With summer ending, the 2014 elections are starting to heat up. And as usual tax policy is a hot button issue as candidates for Governor, state legislatures and other state and local offices from both parties claim their plan is more “fair.” But what does a fair tax system look like? Which states actually have the most fair tax systems?

As a follow up to our 2014 Tax Fairness Survey which focused largely on federal tax policy, WalletHub has analyzed and ranked the 50 states based on the fairness of their state and local tax systems — including income taxes, sales & excise taxes, and property taxes. To rank the states, Wallethub conducted a nationally representative online survey of 1,050 individuals to assess what Americans think a fair state and local tax system looks like. Our analysts then compared what Americans think is fair to data on the real structure of tax systems in all 50 states.

We believe this is the first ever ranking of state and local tax fairness that matches representative data on what Americans think is fair with real data on the structure of state and local tax systems.

State Rankings

Ranking State/Local Tax Fairness: Overall Ranking State/Local Tax Fairness: Liberal Ranking State/Local Tax Fairness: Conservative Ranking
1 Montana Montana Montana
2 Oregon South Carolina Delaware
3 South Carolina Oregon South Carolina
4 Delaware Idaho Oregon
5 Idaho Delaware Idaho
6 Virginia Minnesota Virginia
7 Minnesota Vermont New Hampshire
8 California Virginia California
9 Maryland Maryland Colorado
10 Vermont Utah North Dakota
11 Utah West Virginia Minnesota
12 New Hampshire Maine Nevada
13 Colorado California Vermont
14 Kansas Kansas Utah
15 North Dakota Colorado West Virginia
16 West Virginia North Dakota Kansas
17 Nevada Missouri Maryland
18 Maine Connecticut Massachusetts
19 Massachusetts New Hampshire Maine
20 New Jersey Nevada New Jersey
21 Missouri Iowa Missouri
22 Connecticut Massachusetts Wyoming
23 Nebraska Wisconsin North Carolina
24 Michigan Nebraska Connecticut
25 Iowa Michigan Michigan
26 North Carolina New Jersey Nebraska
27 Wisconsin North Carolina Iowa
28 Wyoming New York Wisconsin
29 Oklahoma Oklahoma Oklahoma
30 Pennsylvania Pennsylvania Alaska
31 New York Rhode Island South Dakota
32 Alaska New Mexico Pennsylvania
33 Rhode Island Kentucky New Mexico
34 New Mexico Wyoming Kentucky
35 Kentucky Alabama Rhode Island
36 South Dakota Ohio Alabama
37 Alabama South Dakota Tennessee
38 Ohio Louisiana Texas
39 Louisiana Georgia Georgia
40 Georgia Alaska Louisiana
41 Tennessee Arizona Ohio
42 Texas Indiana Mississippi
43 Arizona Mississippi Arizona
44 Mississippi Tennessee Florida
45 Indiana Texas New York
46 Florida Illinois Indiana
47 Illinois Florida Illinois
48 Arkansas Arkansas Arkansas
49 Hawaii Hawaii Hawaii
50 Washington Washington Washington

Overtaxed  WalletHub

Wallet Hub Rep vs Dem

State and Local Taxes: What’s Fair?

So what do Americans think is a fair amount to pay in State and Local Taxes? The chart below shows results from our national survey asking respondents how much they think it’s fair to ask households at different income levels to pay in state and local taxes. Answers ranged from a low of 2.5% tax for households making $5,000 a year to a high of 16.36% tax for households making $2.5 million per year. There is a clear upward trend: respondents think state and local tax systems are fair when higher income households pay a greater percentage of their income in taxes than lower income households.

‘Fair’ State & Local Tax Rate by Household Income

Income
$5,000 2.5%
$15,000 3.4%
$30,000 5.3%
$50,000 7.3%
$75,000 9.2%
$100,000 11.6%
$250,000 12.4%
$500,000 13.7%
$1,000,000 15.3%
$2,500,000 16.4%

Data averaged from the full sample of respondents shows a strong preference for a progressive state and local tax structure. And we look at the data by income of respondents we find the same pattern—low-income, middle-income, and high-income respondents all assert that a progressive tax structure is most fair. But what if we look by political ideology? Do economic liberals and conservatives feel the same way?

 

The chart below shows the same data broken down between respondents who self-identify as economically liberal (blue) and economically conservative (red). Although conservatives appear to support higher taxes on the poor and lower taxes on the rich, the general trend is the same: all Americans believe a fair state and local tax system taxes wealthy households at a higher rate than lower- and middle-income households.

‘Fair’ State & Local Tax Rate by Household Income Views of Economic Liberals & Conservatives

$5,000 1.7% 3.1%
$15,000 2.6% 4.0%
$30,000 5.0% 5.6%
$50,000 7.6% 7.0%
$75,000 10.2% 8.5%
$100,000 13.2% 10.3%
$250,000 14.2% 11.0%
$500,000 15.7% 12.1%
$1,000,000 17.5% 13.6%
$2,500,000 18.7% 14.6%

 

So how does the actual structure of state and local tax systems compare to what Americans think is fair? The chart below presents the average real state and local tax burden by income level across the 50 states, as estimated by the Institute on Taxation and Economic Policy (ITEP). We see here that the real relationship between household income and state and local tax burden is negative—as income goes up, state and local tax burden goes down—the exact opposite of what Americans think is fair.

Average Real State and Local Tax Burden by Income Level

Lowest 20% 11.1%
Second 20% 10.0%
Middle 20% 9.4%
Fourth 20% 8.7%
Next 15% 7.7%
Next 4% 7.2%
Top 1% 5.6%

 

Source: Institute on Taxation and Economic Policy

Overall Ranking State Dependency on Property Taxes (1=least) Dependency on Sales & Excise Taxes (1=least) Dependency on Income (Personal & Corp.) Taxes (1=least) Dependency on Other Taxes (1=least)
1 Montana 38 5 23 46
2 Oregon 34 1 46 41
3 South Carolina 29 27 16 32
4 Delaware 49 3 38 49
5 Idaho 16 28 30 29
6 Virginia 31 11 39 26
7 Minnesota 20 24 37 20
8 California 21 16 40 25
9 Maryland 17 8 45 24
10 Vermont 47 14 13 15
11 Utah 13 33 33 22
12 New Hampshire 50 4 6 30
13 Colorado 36 23 17 18
14 Kansas 25 26 29 6
15 North Dakota 3 17 5 48
16 West Virginia 9 34 32 43
17 Nevada 26 45 N/A 44
18 Maine 40 12 24 13
19 Massachusetts 35 6 43 9
20 New Jersey 48 7 20 11
21 Missouri 18 35 27 19
22 Connecticut 41 9 36 3
23 Nebraska 32 21 18 34
24 Michigan 39 30 10 10
25 Iowa 27 25 22 27
26 North Carolina 11 29 41 16
27 Wisconsin 37 13 31 5
28 Wyoming 42 19 N/A 47
29 Oklahoma 7 37 15 45
30 Pennsylvania 19 18 35 37
31 New York 23 10 44 7
32 Alaska 8 2 4 50
33 Rhode Island 46 15 14 2
34 New Mexico 4 44 8 42
35 Kentucky 10 36 42 23
36 South Dakota 30 47 1 36
37 Alabama 2 42 19 38
38 Ohio 15 22 34 35
39 Louisiana 5 48 9 33
40 Georgia 28 31 25 1
41 Tennessee 12 49 3 39
42 Texas 45 38 N/A 40
43 Arizona 33 39 7 4
44 Mississippi 14 40 12 21
45 Indiana 24 32 26 8
46 Florida 43 41 2 28
47 Illinois 44 20 11 17
48 Arkansas 1 46 28 12
49 Hawaii 6 43 21 14
50 Washington 22 50 N/A 31

 

Fairer Tax Systems Rely Less on Sales & Excise Taxes

Sales & Excise Tax Dependency Ranking (1=least dependent)Overall Tax Fairness Ranking (1=most fair)

State Sales and Excise Tax Dependency Ranking Overall Tax Fairness Ranking
MT 5 1
OR 1 2
SC 27 3
DE 3 4
ID 28 5
VA 11 6
MN 24 7
CA 16 8
MD 8 9
VT 14 10
UT 33 11
NH 4 12
CO 23 13
KS 26 14
ND 17 15
WV 34 16
NV 45 17
ME 12 18
MA 6 19
NJ 7 20
MO 35 21
CT 9 22
NE 21 23
MI 30 24
IA 25 25
NC 29 26
WI 13 27
WY 19 28
OK 37 29
PA 18 30
NY 10 31
AK 2 32
RI 15 33
NM 44 34
KY 36 35
SD 47 36
AL 42 37
OH 22 38
LA 48 39
GA 31 40
TN 49 41
TX 38 42
AZ 39 43
MS 40 44
IN 32 45
FL 41 46
IL 20 47
AR 46 48
HI 43 49
WA 50 50

 

Source: Institute on Taxation and Economic Policy; U.S. Census Bureau, WalletHub Survey Data.

Read the rest here:   http://wallethub.com/edu/most-least-fair-tax-systems/6598/