> ITEP index score: -7.3%
> Effective tax rate lowest 20%: 10.9% (14th highest)
> Effective tax rate top 1%: 3.0% (10th lowest)
> 2013 Gini coefficient (pre-tax): 0.48 (12th highest)
Like in several other states reviewed, Tennessee does not have an individual state income tax on earnings, although residents are required to pay a 6% tax on dividends and interest payments. While the lack of an income tax lowers tax burdens on all residents, it does not do so equally. As a share of income, Tennessee’s poorest 20% of households paid 366% what the state’s wealthiest 1% paid in state and local taxes, the seventh largest such discrepancy nationwide. The income group earning close to average incomes was also disproportionately taxed. The middle 60% of earners in the state paid 280% what the wealthiest 1% paid as a share of income, also the seventh highest such percentage in the country. Incomes among Tennessee’s wealthiest households grew by nearly 3% between 2009 and 2013, versus the comparable national growth rate of 0.4%. Among the nation’s less wealthy earners, including those in Tennessee, incomes shrank.
> ITEP index score: -7.3%
> Effective tax rate lowest 20%: 12.0% (8th highest)
> Effective tax rate top 1%: 4.2% (14th lowest)
> 2013 Gini coefficient (pre-tax): 0.47 (18th highest)
General sales and excise taxes on everyday goods such as gas are considered regressive because while everyone consumes very similar quantities, not everyone has similar incomes. Pennsylvania, which has a long-term plan to raise taxes to repair its transportation infrastructure, levies a tax of 41.8 cents per gallon of gasoline, the fifth highest rate in the nation. Residents with the lowest 20% of incomes paid 5.8% of their incomes on sales and excise taxes like these, versus the comparable rate of 0.6% for the state’s wealthiest residents. Similarly, while property taxes tend to be levied more proportionately across the nation, Pennsylvania’s poorest households paid nearly 4% of their income on their homes, while the wealthiest 1% paid just 1.6%. This was a relatively large gap compared to other states. Since the bulk of school funding comes from property taxes, such disparity has prompted some to argue that Pennsylvania children receive an “education by zip code.”
> ITEP index score: -8.1%
> Effective tax rate lowest 20%: 13.2% (3rd highest)
> Effective tax rate top 1%: 4.6% (19th lowest)
> 2013 Gini coefficient (pre-tax): 0.48 (8th highest)
The poorest 20% of Illinois households paid 13.2% of their incomes in state and local taxes, and the middle 60% of earners paid 10.9% of their incomes, both nearly the highest effective tax rates respectively. Meanwhile, the state’s wealthiest residents paid 4.6% of their incomes in state and local taxes, one of the lower effective tax rates. Looking just at income tax, the wealthiest 1% paid a slightly higher effective income tax rate than the poorest 20% of state households. However, Illinois uses a flat income tax rate, which is widely considered to be a regressive feature. The state’s wealthiest residents had especially high incomes. A typical Illinois household in the top quintile earned more than $200,000 in 2013, the ninth highest compared to the wealthiest households in other states.