Our State’s Regressive Tax Structure

Washington State continues to earn dubious distinctions in the world of tax policy.

The latest report on state taxes comes from the Institute on Taxation and Economic Policy, which ranked Washington’s tax structure as the most regressive in the nation. The Institute found that those earning less than $21,000 a year (the lowest 20% income group) pay 16.8% of income in state and local taxes here while the top 1% of earners pay only 2.4%. Take a look at the report’s executive summary or its complete breakdown of Washington’s tax system.

The New York Times also has an interesting analysis of this report, including a look into what is considered a “fair” system. It cites a survey by the company WalletHub, which tried to determine how conservatives and liberals view fairness when it comes to taxes. Both groups seemed to value the idea that those with higher incomes should pay a higher share. The result is that Washington State ranks dead last in terms of fairness on both the liberal and conservative scales.

As I’ve written before, our state’s tax structure needs a serious overhaul. Local economist Dick Conway has an excellent white paper that compares tax structures based on five principles: fairness, adequacy, stability, transparency, and economic vitality. He concludes that a state income tax would perform better than our current system on the first four measures and would not have an impact on the fifth.

For those who would argue against an income tax, remember we already have a corporate income tax on gross income (the business and occupation tax). Taxing gross income instead of net income makes no sense to me.

Our state should eliminate the current business and occupation taxes, institute a personal and corporate income tax on net income, and reduce our regressive sales and property taxes. Apparently liberals and conservatives agree that this would be a fairer approach.