Alabama has 10th most regressive tax system in nation, according to report

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The doors of the Alabama State House.

Alabama’s tax system ranks as one of the ten most regressive in the country, according to a report issued Wednesday by the Institute on Taxation and Economic Policy, a non-partisan think tank based in Washington, DC.

The report, released Wednesday, found Alabama’s tax system was the tenth most regressive in the nation, with the lowest 20 percent of income earners in the state paying over 10 percent of their household incomes in taxes.  The top 1 percent of income earners paid just 3.8 percent of their income in taxes.

Washington State ranked first for regressiveness, with the bottom ten percent of income earners paying over 16 percent of their income in taxes.  Alabama, like other states, has a relatively low income tax, very low property taxes and high sales taxes, which tend to affect lower-income earners hardest.

ITEP noted in its report, however, that states with more progressive tax systems, like Oregon and Vermont, still take significant chunks of income from lower-income households.

“Virtually every state’s tax system is fundamentally unfair and is made more so by the absence of a progressive personal income tax and by the over reliance on consumption  taxes which neutralize whatever benefit the working poor receive from available low-income tax credits,” the report said.

ITEP noted Alabama’s income tax tends toward regressiveness, as the top rate – five percent – kicks in for households making $6,000 a year.  In addition, the wealthiest income earners in the state can write off their federal income taxes on their state return, leaving them with an effective tax rate of three percent.

“As a result, effective marginal income tax rates in Alabama actually decline at higher income levels,” the report said.

– posted by Brian Lyman

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