State and Local Tax Fairness

            The American dream is the dream that any generation can say that they are better off than their parents’ generation; the dream is that if you work hard you will be able to climb the ladder to the highest rung of American society; the dream is that anyone can make it and everyone should try.  This is a dream that may in some ways hurt by the structure of tax.  There has always been a debate about the structure of tax in regards to fairness.  Is it fair to tax everyone at an equal flat rate or is it better to tax more heavily those who can most afford it?  The most relevant terminology is progressive, regressive, and neutral.  These terms all relate to socioeconomic mobility a progressive tax is a tax which assists upward social mobility.   A regressive tax is a tax prevents socioeconomic mobility.  A neutral tax is a tax which has no effect on socioeconomic mobility.  These terms can also be thought of as tax as it relates to a percentage of income, so a progressive tax is a tax in which the rich pay a higher percent of their income to tax.  A regressive tax is a tax which is paid at a lower percentage of income by the rich, and a neutral tax is a tax which is paid at an equal rate as a percent of income.  The issue of tax fairness is complicated by the fact that not all taxes are determined by income.  The question of “who pays,” is one which is constantly debated, and has huge implications for the economic well-being of the population.  The purpose of this paper is to assess the “fairness” of taxes in terms of their regressive, progressive, or neutral nature and to assess the states which are the best and worst in these categories. 

There are some taxes which are widely considered to be regressive taxes.  These include sales tax and excise tax.  A sales tax is generally considered to be a regressive tax because low income individuals spend a higher percentage of their income so that the tax paid as a percentage of income is higher for lower income individuals.  Excise tax is regressive first because it is an addition to sales tax and is therefore regressive for the reasons that sales tax is, but excise tax is also generally imposed on items consumed more heavily by lower income individuals.   Sometimes the lack of tax can cause tax policies to be regressive.  Some states do not levy any state income tax and must therefore rely more heavily upon sales and property tax both of which tend to be regressive.