Few people don't wish they could pay lower tax rates. But a new survey by WalletHub asked a slightly different question: What's a fair taxation level?
With the midterm elections just a month away, a lot of issues will sway voters one direction or the other — the economy, the fight against terror groups in the Middle East, or the ongoing implementation of healthcare reform. However, another issue will also be on the minds of many voters – an issue that’s always a factor in American elections: Taxes.
It’s something of a national pastime to complain about taxes. Few people don’t wish they could pay lower tax rates. But a new survey by WalletHub asked a slightly different question: What’s a fair taxation level?
The result: Generally speaking, Americans think those making more should be taxed at higher rates. WalletHub asked 1,050 people how much they think Americans should pay in state and local taxes. Overall, respondents said those making $5,000 per year or less should pay state and local taxes of just 2.5%. Those making more than $2.5 million or more, however, should pay 16.4%.
WalletHub also broke down the data based on whether respondents identified as liberal or conservative. The general trajectory — higher tax rates for higher-earners – held true across ideological lines. However, conservatives wanted the poor (the bottom-earning 20%) to pay slightly higher rates than those suggested by liberals. Liberals, meanwhile, wanted the rich to pay higher rates than conservatives suggested.
So which states have taxation systems that match what the public thinks is fair, and which states are most off the mark? Montana, Oregon, and South Carolina come in first, second, and third on the list. On the opposite end of the spectrum are these states:
The Volunteer State’s tax structure is out of whack regardless of whether you apply the liberal or conservative standards. In particular, WalletHub found the state’s 1% are under-taxed, according to the fairness metrics in the survey. The state is also heavily dependent on sales and excise taxes compared to other states, ranking just behind Washington State.
Texas prides itself on having a strong business climate, but its taxation policies don’t align with what most Americans think is fair. Even using the fairness metrics of conservatives, the state comes in 38th out of the 50 states. Texas taxes the rich significantly less than the ideal rates set forth in the survey. It also over-taxes the poor, according to the survey.
Arizona makes the list in large part because it taxes the poor at a higher rate than Americans generally consider fair. Arizona is one of the states least dependent on personal income and corporate taxes. The state tends to depend more on property taxes and sales and excise taxes.
Mississippi is called out for over-taxing the middle class, according to the survey’s metrics. The state is also highly dependent on sales and excise taxes, compared to other states. Those taxes are generally considered to be more burdensome on lower-income earners.
The Hoosier State gets poor scores for its tax rates for middle-class residents and the poor. However, the state tends to be middle of the pack in terms of how much it depends on property taxes, sales taxes, income taxes, and corporate taxes.
Florida, like Texas, was found to be unfair at the income margins. The wealthy pay lower taxes than Americans think is fair. The poor pay higher taxes than what the survey calculated as fair. Interestingly, income taxes appear to be less important in Florida. The state comes in 49th in terms of dependency on income and corporate taxes.
In Illinois, the fairness problems all relate to over-taxation. The state doesn’t rank as a high offender when it comes to under-taxing the rich. It simply over-taxes both the middle-class and poor, coming in second place in the latter category.
Arkansas, meanwhile, scores poorly across income brackets. The state taxes the poor and middle class more than Americans think is fair, but the over-taxation stops when it gets to the highest earners. In that category, Arkansas ranks second, behind only Wyoming.
The Aloha State joins Illinois as a state that doesn’t under-tax its rich, but does over-tax its poor and middle class. The state is also highly dependent on sales taxes and not as dependent on property taxes, both factors that contribute to its poor ranking.
Washington comes in last whether you use the conservative metrics, liberal metrics, or the averages. The state comes in seventh place on the list of states under-taxing the wealthy, and first place on the list of states over-taxing the poor. It’s also the most dependent on property taxes of all 50 states.