Derived From Who Pays? 5th Edition Essay Samples

States and governments generate income through charging their citizens taxes. There are different types of tax structures such as progressive, regressive and neutral. Progressive tax structure is also known as proportional tax. Proportional tax is charged according to the income earned by a citizen. Citizens earning high income pay high tax and those earning low income pay less tax. Studies show that progressive tax is not a good form of raising income because it could lead to recession due to changes in business cycles (Chernick, Reimers and Tennant, 5). Regressive tax structure is used when low income earning citizens pay more tax than high income earners. This means that the low income earners bear the tax burden. This form of tax is mainly charged through consumption. In progressive tax structure, tax is charged on income but in regressive tax structure, tax is paid on consumption (sales). Though regressive tax seems to be unfair because the burden is on poor citizens, it is more preferred to progressive tax because more income is generated by States which use this form of taxation (Piketty and Saez, 4). A neutral tax structure is a tax which will enable the federal government to charge a certain percentage of tax to States and determining how much income each state is required to raise. This type of tax is not politically influenced and therefore will not always change according to the dynamics of the electorate (Ryan, 3). The state and local government taxes are mostly regressive while some are progressive and none uses neutral tax system.
The most regressive States are Washington, Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana. These States have certain characteristics which make them stand out. For example, Florida, South Dakota, Texas and Washington do not charge tax on personal income. While states like Pennsylvania, Illinois and Indiana use a flat rate with an equal marginal rate to the wealthy and poor residents. Arizona uses a graduated scale while Kansas has only two brackets. The States using regressive tax mainly charge sales and excise tax which is mainly on consumption. This form of tax mainly affects groceries and that’s the reason it is considered regressive because most of the poor people spend most of their income on necessities. Sales tax is computed as a percentage of price of the taxable good or service. Excise tax is charged depending on the quantity consumed. Hence excise tax is considered as the most regressive form of tax because both the poor and wealthy use the same goods and services at the same price depending on quantity consume. An example of this is beer. In this case, what determines how much excise tax you pay is the number of bottles of beer consumed. Property tax is another form of regressive tax because it consumes a large share of income for the poor and a small share of the income of the wealthy. The poor and middle class who wish to own a home must pay almost three times the families income and one- and- half times for the wealthy. The residents using rented property pay tax which is passed on to them by landlords through high taxes. Regressiveness of property and sales and excise taxes is mainly under the control of policy makers who have the power to control the factors which lead to regressiveness. This can be done by manipulating such factors as using exemptions, fair tax rates for home owners and external factors of housing patterns in the state (Davis, Carl et al, ).
The most progressive States are California, Delaware, District of Columbia, Minnesota, Montana, Oregon and Vermont. These states rely less on sales and excise tax since their tax structure is more progressive. Vermont tax system is mostly fair because other than following a progressive tax system and charging less sales and excise tax, they also give a refund on Earned Income Tax Credit (EITC). Delaware, Oregon and Montana also levy less consumption tax and they rely on charging tax on personal income. Oregon also gives a refund on EITC. The District of Columbia and Minnesota have almost a flat tax system because they majorly offer refunds and charge high tax on high income earners. This leads to a tax break meaning certain levels of taxes cannot be exceeded. California’s tax system is the best because it heavily relies on progressive income tax. It should be noted that even the states which are considered to be least regressive do not have a fair tax system. This is because of the use of consumption taxes at some level especially for groceries and property. Therefore, there is a degree of regressiveness for each State since they all have consumption and property taxes. The following table provides a summary of local taxes of the most regressive States (Davis, Carl et al, 5).

Massachusetts is considered the 24th most unfair State on local tax system. This is because it is characterised by regressive tax structure on most items. Such States are considered to have indices of tax inequality which are negative. Some of the progressive characteristics of Massachusetts are a 15% EITC, sales tax exclude groceries and clothes and there is no tax threshold. Some of the characteristics which make it be considered as most regressive are high cigarette tax, does not refund child tax credit, does not give property tax circuit breaker and it uses flat rate for personal income. However, there are proposed changes in tax such as increased gas tax by 3%, increased cigarette tax by 1 dollar per pack and drop in flat rate from 5.2% to 5.15% (Davis, Carl et al, 18).
There has been some tax changes by lawmakers which are meant to increase the fairness of tax charged to the citizens. Some of the States have adopted these changes and some changes are in favour of the citizens while others are not. For example, Kansas reduced personal tax rate from 3.9% to 2.3%. Ohio also reduced personal income tax and introduced EITC. Other States such as Delaware increased personal tax from 5.9% to 6.6% and Minnesota from 7.85% to 9.85%. Virginia increased sales tax from 5.0% to 5.3% and sales tax on automobile from 3.0% to 4.15% (Davis, Carl et al, 132).

Works Cited

Chernick, Howard, Cordelia Reimers and Jennifer Tennant. "Tax Structure and Revenue Instability: The Great Recession and the States." IZA Journal of Labor Policy, Volume 3 (2014): 1.
Davis, Carl, et al. "Who pays? A Distributional Analysis of the Tax Systems in All 50 States." Institute on Taxation & Economic Policy, 5th Edition (2015): 5-139.
Piketty, Thomas and Emmanuel Saez. "How Progressive is the U.S Federal Tax Systems? A Historical and International Perspective." Journal of Economic Perspectives-Volume 21, Number 1, Winter 2007, Pages 3-24 (2007): 5.
Ryan, Tom. "The Neutral Tax." USGovernmentrevenue.com (2014): 1-4.