The grocery bill in Washington keeps climbing, gas prices jump between paychecks, and rent hikes arrive like clockwork, yet paychecks rarely stretch far enough. Politicians label it an “affordability crisis,” but the numbers show something more specific: a tax crisis that leans hardest on people with the least. According to a 50-state analysis by the Institute on Taxation and Economic Policy, state and local systems are overwhelmingly regressive, with the bottom 20 percent of households paying average effective tax rates around 7.3 percent while the top 1 percent often face closer to 3.1 percent, and new federal Census data confirms that many states are doubling down on sales taxes that hit low-wage families first.
What Makes State Taxes Regressive?
The federal government’s own classifications make clear why some tax mixes tilt against low-income residents. In its annual state tax-collections program, the Census Bureau separates broad categories such as general sales taxes, selective excise taxes and individual income taxes, defining each in an official description that distinguishes consumption taxes from progressive income-based levies. General sales and excise taxes fall on what people buy rather than what they earn, while graduated income taxes can be designed so higher earners pay higher marginal rates, which is why analysts treat them as the main counterweight to regressivity.
Fresh figures from the 2024 State Government Tax Dataset show how far many states have gone in the opposite direction. Using the machine-readable flat file that underlies that release, available in a Census FY2024 flat-file, researchers can calculate the share of each state’s revenue that comes from general sales and selective excises, and those primary data reveal that at least ten states now rely on these taxes for more than half of their tax collections. When the Institute on Taxation and Economic Policy applies its microsimulation model to those structures, as described in its ITEP methodology discussion, it assumes that most consumption taxes are passed forward into prices and paid out of current income, which means low-income households that spend nearly every dollar they earn end up shouldering a far larger share of these levies than high-income households that can save or invest.
The Affordability Crisis Exposed by Tax Data
When I look past slogans and into the numbers, the affordability crisis looks less like a vague feeling and more like a precise, measurable burden. In its flagship 50-state distributional analysis, the Institute on Taxation and Economic Policy finds that in the most regressive states, such as those that depend heavily on sales and excise taxes and do not tax high incomes, the bottom quintile of households can pay effective state and local tax rates of 12.4 percent of their income. By contrast, the same research shows that in more progressive states that rely more on graduated income taxes, overall effective rates can be similar or even higher in aggregate, as in California at 11.6 percent, but low-income residents pay smaller shares of their income while top earners contribute more, which lines up with ITEP’s finding that average effective rates for the bottom 20 percent cluster around 7.3 percent compared with roughly 3.1 percent for the top 1 percent nationwide.
Those structural choices matter even more during periods of high prices and economic uncertainty. A curated chart book from ITEP, Fairness Matters, visualizes how states that lean on sales taxes tend to rank among the most regressive and how that burden compounds for families already squeezed by housing, healthcare and transportation costs. At the same time, research from Pew finds that tax revenue volatility is increasing in most states, especially those that concentrate their tax base in narrower or more cyclical sources, which means governments that promise affordability while clinging to regressive systems may struggle to fund the very services that keep costs manageable, such as public transit, education and healthcare.
Evidence from Official Sources: Who’s Hit Hardest?
The federal government’s own accounting backs up the picture painted by independent distributional studies. The Census Bureau maintains official finance data for state and local governments that tracks how much revenue comes from different tax types, and its State Government Tax Dataset provides the primary figures analysts use to measure reliance on sales, income and property taxes. On top of that annual snapshot, the bureau’s QTAX program publishes official quarterly totals so observers can see in near real time how collections from each tax change, and the direct downloadable tables behind QTAX, available through historical QTAX tables, show that general sales tax revenue has risen faster than some other categories, with sales tax collections up 5 percent year over year in the first quarter of 2024 in many states.
When those official numbers are mapped onto ITEP’s distributional findings, the pattern is stark. The primary datasets on state government tax collections by type reveal which states lean hardest on general sales and excise taxes, and ITEP’s flagship Who Pays chart book shows that 41 states have regressive tax systems where low- and middle-income residents pay higher effective rates than the wealthy. That same chart book highlights that so-called “no income tax” states are often high-tax environments for low- and moderate-income families once sales, property and excise taxes are added up, which aligns with the broader conclusion from ITEP’s 50-state analysis that nearly every state’s current system deepens inequality rather than easing it.
Classic Studies on Tax Incidence and Burden
Economists have been measuring who really bears state and local taxes for decades, and their findings help explain why the Census and ITEP numbers look the way they do. A classic NBER paper on sales tax incidence, cataloged as w6667, estimates that roughly 90 percent of general sales taxes are passed through into consumer prices, meaning that although businesses remit the tax, households effectively pay it at the cash register. Because lower-income households spend a larger share of their income on taxable goods and services, that pass-through translates into a higher effective tax rate on their earnings, while higher-income households can save more or purchase untaxed services and investments.
Another peer-reviewed-style study, NBER working paper w33385, examines measures of tax progressivity across states and finds a strong correlation between heavy reliance on sales and property taxes and higher post-tax inequality, as captured by a worsening Gini coefficient. ITEP’s own microsimulation work, described in detail in its simulation discussion, builds on that academic literature by modeling how different income groups experience each tax once economic incidence is taken into account, while also acknowledging that certain assumptions, such as exactly how much of a business tax is shifted to consumers or workers, introduce uncertainty that researchers try to handle transparently rather than hide.
Why States Cling to Regressive Systems and the Tradeoffs
If regressive systems are so hard on low-income residents, the obvious question is why so many states stick with them. Part of the answer lies in perceived revenue stability and political branding. Research from Pew finds that tax revenue volatility is increasing in most states, with different mixes of sales, income and severance taxes producing different patterns of boom and bust, and lawmakers often argue that broad-based sales taxes offer a more predictable stream than progressive income taxes that rise and fall with capital gains. At the same time, states that advertise themselves as “no income tax” jurisdictions, such as Florida, have built political identities around that label, even though ITEP’s Curated Who Pays charts show that these states are not low-tax for poor and working-class households once consumption and property taxes are counted.
In Washington, for example, Republican leaders have framed rising housing and living costs as an affordability emergency, with one local report in the Chewelah Independent quoting GOP arguments that the state’s policies are squeezing families. Yet Washington’s heavy reliance on sales taxes and lack of a broad-based income tax place it among the most regressive systems in ITEP’s rankings, which means low-income residents there pay a larger share of their income in state and local taxes than the wealthy do. The tradeoff is that while politicians can claim credit for avoiding income taxes on high earners, the state must lean harder on sales, excise and property taxes that bite into every grocery trip, utility bill and car repair, and Pew’s analysis suggests that this model does not necessarily shield budgets from volatility either.
Path to Real Affordability: Policy Fixes
Fixing affordability in a serious way means changing who pays what, not just handing out temporary rebates or gas-tax holidays. ITEP’s flagship 50-state Who Pays analysis and its Fairness Matters chart book lay out several broad directions that states can take: broaden and strengthen progressive income taxes, scale back regressive sales and excise taxes or at least exempt more basic necessities, and target property tax relief to low- and moderate-income homeowners and renters rather than across-the-board cuts that mostly help those with the most valuable homes. These publications emphasize that many “no income tax” states could improve affordability for the bottom 20 percent simply by adding a modest, graduated income tax on very high earners and using the revenue to reduce sales taxes or fund credits for low-income families, which would narrow the gap between the 7.3 percent average effective rate currently paid by the poorest households and the roughly 3.1 percent paid by the top 1 percent.
In its methodology and discussion of the seventh edition of Who Pays, ITEP’s staff argue that “a fair tax code is a powerful tool for advancing equity and economic security,” and they stress that the most sustainable reforms are those that both improve progressivity and provide reliable revenue for core services. At the same time, they acknowledge that there are evidence gaps in projecting the long-term revenue impact of major structural changes, such as replacing a large share of sales tax revenue with income taxes or vice versa, which is why ongoing analysis using primary Census datasets and QTAX data is essential. The path to real affordability runs through those numbers: states that want lower costs for ordinary people will need to move away from systems that tax every dollar a cashier or home health aide earns more heavily than the last dollar a millionaire takes home, and toward tax codes that ask more of those who have gained the most from the economy while lightening the load on those struggling to get by.
More From The Daily Overview
*This article was researched with the help of AI, with human editors creating the final content.
Julian Harrow specializes in taxation, IRS rules, and compliance strategy. His work helps readers navigate complex tax codes, deadlines, and reporting requirements while identifying opportunities for efficiency and risk reduction. At The Daily Overview, Julian breaks down tax-related topics with precision and clarity, making a traditionally dense subject easier to understand.
