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And the States with the Fairest Tax Systems Are …

Oct 2nd 2015
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Mention tax fairness and you're guaranteed to fire up a conversation.

New rankings from the personal finance website WalletHub use tax data to fuel the discussion with a comparison of what US citizens consider fair.

For a little added incendiary, the survey also ranks states according to where low- and middle-income residents are the most overtaxed and where high-income earners are the most undertaxed.

WalletHub's analysis of state and local taxes includes income, sales and excise, and property taxes. It also conducted an online tax fairness survey, in which 1,050 people were polled. That information was then compared to the state tax data.

According to WalletHub's findings, the five states leading in tax fairness are:

1. Montana

2. Oregon

3. South Carolina

4. Delaware

5. Idaho

The five least-fair states are:

46. Illinois

47. Arkansas

48. Hawaii

49. Georgia

50. Washington

The top 10 states where the highest 1 percent of earners are most undertaxed are:

1. Wyoming

2. Nevada

3. Florida

4. South Dakota

5. Washington

6. Alaska

7. New Hampshire

8. Texas

9. North Dakota

10. Tennessee

The top 10 states where the middle-income class is most overtaxed are:

1. Arkansas

2. New York

3. Mississippi

4. Hawaii

5. Kentucky

6. Indiana

7. Ohio

8. New Mexico

9. Vermont

10. Illinois

The top 10 states where the low-income class is most overtaxed are:

1. Washington

2. Hawaii

3. Illinois

4. Florida

5. Rhode Island

6. Texas

7. Arizona

8. Arkansas

9. Indiana

10. Pennsylvania

So what do people think is actually fair to pay in taxes? It comes as no surprise that it varies by income levels. Respondents earning $5,000 annually think taxes should be about 2.5 percent, while those making $2.5 million a year say 16.4 percent is fair. The emerging trend, according to the report, is that people believe state and local taxes are fairest when higher-income earners pay more in taxes than lower-income people.

And, at all income levels, respondents said a progressive tax system would be the most fair, the report states.

But fairness is subjective and everyone will have their own interpretation, said Thomas Potiowsky, director of the Northwest Economic Center in the College of Urban and Public Affairs at Portland State University in Portland, Oregon.

“State and local governments could at least improve the debate and understanding by being more transparent about their tax systems,” he said.

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