State tax system hurts poor, data find Washington reported to have one of most regressive structures

OLYMPIA -- Washington's tax structure puts a bigger tax burden on the poor than any other state in the nation, according a new report released yesterday.

The study by the Institute on Taxation and Economic Policy -- which is affiliated with the liberal-leaning Citizens for Tax Justice -- found that the poorest 20 percent of Washingtonians pay 17.5 percent of their income in taxes each year, while the top 1 percent pay just 3.3 percent.

Those numbers are similar to the recent report of the Washington State Tax Structure Study Committee, which has recommended the state adopt an income tax and lower or remove the sales tax and the state portion of the property tax. That study found that households making less than $20,000 -- a slightly larger group -- pay an average of 15.7 percent of their incomes in taxes.

The institute's 50-state study was intended to increase debate about how states pay for government as lawmakers around the country struggle with big budget gaps.

"Unfortunately, when it comes to paying for services, most states currently have extremely unfair tax systems," said Robert McIntyre, author of the study.

Because Washington has no income tax, state government leans heavily on the 6.5 percent sales tax. The other states at the top of the study's list -- Florida, Tennessee, Texas and South Dakota, have similar systems. The states ranked least regressive -- Delaware, Montana, Maine and Vermont -- tend to lean heavily on income taxes that fall more heavily on the rich.

Sales taxes are considered regressive because they fall more heavily on poor people, who typically spend nearly all their money on everyday necessities.

The rich, meanwhile, typically spend smaller percentages of their income on taxable goods. While Washington's sales tax exempts food and medicine -- which cushions its impact on the poor -- it also exempts most services, which tends to benefit the affluent.

Adding to the burden are so-called "sin taxes" on tobacco and alcohol, which also fall heavily on the poor. Washington has one of the highest cigarette taxes of any state.

The Washington State Department of Revenue doesn't quarrel with the study's numbers, spokesman Mike Gowrylow said. But he cautioned against generalizing about the lowest-income households.

"When you get down to that lower group, some strange things happen," Gowrylow said.

The group includes college students with other sources of money, or retirees spending accumulated wealth, Gowrylow said.

Also, the taxes on alcohol and tobacco make up a big chunk of the low-income tax burden. The department figures households with incomes of less than $20,000 spend about $168 on tobacco and alcohol taxes every year -- about 9 percent of their total tax burden.

The institute hopes its study will debunk the notion that the sales tax is fair because it taxes consumption. But Matthew Gardner, a senior policy analyst on the study, concedes that people tend to shrug off sales taxes because there is no tax return or large lump-sum payment involved.

The report doesn't specifically endorse any particular change in the tax structure. But it's being promoted here by the Washington Tax Fairness Coalition, a loose group of unions and liberal interest groups that advocates a more progressive tax system.