Top 1 percent paying lower tax rates than other residents in most states: Study

The wealthiest families in most states are paying lower tax rates than everyone else, a new analysis found.

The new study conducted by the Institute on Taxation and Economic Policy analyzed the tax systems across all 50 states and Washington, D.C., by looking into how each of seven different income groups pays state and local tax rates.

The study ultimately found that the lower someone’s income is, the higher their overall effective state and local tax rate is.

“On average, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households,” the analysis states.

In 41 states, the top 1 percent of families have a lower tax rate than everyone else, according to the analysis. In 42 states, the top 1 percent of earners pay less than the bottom 20 percent, and in 46 states the top 1 percent are taxed at a lower rate than the middle 60 percent, the study found.

The bottom 20 percent are taxed the lowest rate among income brackets in just Washington, D.C., and six states: New Mexico, New Jersey, New York, Vermont, Minnesota and Maine. Thirty-four states tax low-income families at higher rates than everyone else, the study found.

The analysis warned that taxing the wealthy at a lower rate than lower-income families can hinder the state’s ability to raise revenue.

“In other words, not only do the rich, on average, pay a lower effective state and local tax rate than lower-income people, they also collectively contribute a smaller share of state and local taxes than their share of all income,” the study states.

“This limits states’ ability to raise revenue, particularly as inequality increases. Research shows that when income growth concentrates among the wealthy, state revenues grow more slowly, especially in states that rely more heavily on taxes that disproportionately fall on low- and middle-income households,” it continued.