STATE AND LOCAL TAXES….Reader Bill

STATE AND LOCAL TAXES….Reader Bill Nazzaro pointed me to this report from the Institute on Taxation and Economic Policy. As the chart below shows, state and local taxes, when taken as a whole, are highly regressive. Among the non-elderly, the poorest pay about 11% of their income in total state and local taxes while the rich pay about 7%. The report also has state-by-state breakdowns, so check it out to see how your state comes out.

The bottom line is that when people talk about how high earners pay the lion’s share of federal income taxes, you’re not getting the whole story. The whole story is this:

  • The rich pay the bulk of taxes because they have the bulk of the money.

  • Federal income tax is progressive, but this only barely makes up for the regressive nature of state and local taxes.

  • When you add up all the taxes people pay (state, local, and federal), the tax system is progressive, but not as much as you’d think.

Keep this in mind the next time some yammerhead like Steve Forbes starts nattering on about a flat tax. The end result of a flat federal income tax would be to make the entire tax system regressive. Not exactly the “fair” result that the flat taxers pretend to be in favor of.

UPDATE: Some stuff has been rearranged and edited to make it clearer. I hope.

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