Poor and middle-class families pay a much higher share of their income in sales and property taxes than do the wealthy, according to a recent study of state tax systems by the Institute on Taxation & Economic Policy. The study found that the less states and localities rely on progressively structured income taxes, the greater the relative burden on low and middle-income households.
In Maryland, households in the lowest 20 percent of earners (people earning less than $24,000 per year) pay 9.7 percent of their incomes in taxes. The middle 20 percent pay 10.3 percent, and the top 1 percent of households pay 6.7 percent of their total incomes in taxes.
State and local tax structures that rely heavily on property taxes, or sales and excise taxes, tend to hit low and middle-income families particularly hard, the study concludes.
“Property taxes, including both taxes on individuals and business taxes, are usually somewhat regressive,” reads the study. “On average, poor homeowners and renters pay more of their incomes in property taxes than do any other income group — and the wealthiest taxpayers pay the least.”
Sales and excise taxes are also “very regressive,” since “oor families pay almost eight times more of their incomes in these taxes than the best-off families, and middle-income families pay more than five times the rate of the wealthy.”
The study can inform policy discussions in cities like Baltimore, with high rates of poverty (23.8 percent according to the last census) and heavy reliance on regressive taxes such as the city’s property tax.
“There are moral and practical reasons to be concerned about ,” according to the study. “Unfair tax systems not only exacerbate widening income inequality in the short term, but they also will leave states struggling to raise enough revenue to meet their basic needs in the long term.”