Ten states — Washington, Texas, Florida, South Dakota, Nevada, Tennessee, Pennsylvania, Illinois, Oklahoma, and Wyoming — are particularly regressive, with upside-down tax systems that ask the most of those with the least. These “Terrible Ten” states tax their poorest residents — those in the bottom 20 percent of the income scale — at rates up to six times higher than the wealthy. Middle-income families in these states pay a rate up to four times higher as a share of their income than the wealthiest families.
What characteristics do states with particularly regressive tax systems have in common? See Figure 4 for a look at the ten states with the most regressive tax systems. Several important factors stand out:
  • SEVEN OF THE 10 STATES DO NOT LEVY A BROAD-BASED PERSONAL INCOME TAX — FLORIDA, SOUTH DAKOTA, NEVADA, TENNESSEE, TEXAS, WASHINGTON, AND WYOMING.Tennessee currently levies a limited personal income tax that only applies to interest and dividend income, but it will be eliminated by 2021.
  • THREE STATES DO LEVY PERSONAL INCOME TAXES BUT HAVE STRUCTURED THEM IN A WAY THAT MAKES THEM MUCH LESS PROGRESSIVE THAN IN OTHER STATES. Pennsylvania and Illinois use a flat rate, which taxes the income of the wealthiest family at the same marginal rate as the poorest wage Oklahoma has a graduated rate structure but applies the top rate starting at taxable income of $12,200 for married couples — making the tax virtually flat in practice.
  • SIX OF THE 10 MOST REGRESSIVE TAX SYSTEMS —FLORIDA, NEVADA, TENNESSEE, TEXAS, SOUTH DAKOTA, AND WASHINGTON — RELY HEAVILY ON REGRESSIVE SALES AND EXCISE TAXES. These states derive roughly half to two-thirds of their tax revenue from these taxes, compared to the national average of 35 percent in fiscal year 2014-2015.