As the race for the 2016 elections takes off, WalletHub turned its attention to state and local tax systems to determine where citizens are paying the fairest — and the least fair — rates.
WalletHub compared the tax structures in each state to responses from a survey of 1,050 taxpayers about what they think a fair tax system looks like.
According to Joseph Vonasek, assistant professor in the College of Liberal Arts at Auburn University, the difference between what taxpayers think is fair and the actual structures of state and local tax systems can be attributed to what he calls “Miles Law.” He told WalletHub, “Miles, a career federal bureaucrat, coined a maxim that essentially says ‘where one stands on an issue depends upon where one sits.’”
Taxpayers are rightfully focused on their own self-interest, he continued. “As well, the legislative actors (both elected officials and ‘lobbyists’) that are responsible for the actual shape of the structure have their interests and the result is sometimes tax exemptions or ‘tax spending.’”
He referred to the reduction of taxable income allowed for home loan interest payments or tax-free interest earnings on government issued bonds as an example. “If you own a home or invest in tax-free municipal bonds, you might think of these as inherently good; enabling home ownership and lowering interest rates on borrowing by governments. If you do not, you might perceive these exemptions as increasing the level of other taxes that you pay in order to compensate for the loss of tax revenues that are providing a benefit to others.”
Wyoming, Nevada and Florida were ranked the three states where the richest 1% of Americans are undertaxed. Arkansas, New York and Mississippi taxed the middle class too high, according to the report, and Washington, Hawaii and Illinois put too much of a tax burden on the poorest Americans.
Herbert Lazerow, professor of law at the University of San Diego, believes there isn’t a large distinction between the public’s perception of fair taxes and actual tax structure. However, he told WalletHub, “To the extent that there is, it probably derives from factors identified in a doggerel by the late Sen. Russell Long, then Chairman of the Senate Finance Committee: ‘Don’t tax you, don’t tax me. Tax that feller behind the tree.’”
Following are the states that WalletHub found had the least fair state and local tax structure, based on their dependency on property, sales and excise, income and other taxes. Lower numbers indicate a lower dependency.
- Dependency on Property Taxes: 25
- Dependency on Sales and Excise Taxes: 41
- Dependency on Income (Personal and Corporate) Taxes: 8
- Dependency on Other Taxes: 4
- Dependency on Property Taxes: 14
- Dependency on Sales and Excise Taxes: 36
- Dependency on Income (Personal and Corporate) Taxes: 27
- Dependency on Other Taxes: 5