The Least Regressive State and Local Tax Systems

Just as the combination of flat (or non-existent) income taxes and high sales and excise taxes tends to make for very regressive tax systems, the most noticeable features of the least regressive tax states are exactly the opposite: they have highly progressive income taxes and rely less on sales and excise taxes. For example:

  • Vermont’s tax system is among the least regressive in the nation because it has a highly progressive income tax and low sales and excise taxes.
  • New York and the District of Columbia each achieve a close-to-flat tax system overall through the use of generous refundable EITC’s and an income tax with relatively high top rates and limits on tax breaks for upper-income taxpayers.
  • Delaware’s income tax is not very progressive, but with its high reliance on income taxes and no sales tax, it has a very low use of consumption taxes. Overall, this results in a tax system that is only slightly regressive overall.

Oregon similarly has a high reliance on income taxes and very low use of consumption taxes. The state has a fairly progressive personal income tax rate structure and also offers a refundable EITC.

Source: “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States” by the ITEP (The Institute on Taxation & Economic Policy), the 4th edition, January 2013, finds that Oregon is one of the five best states for fair tax policy.