PA tax burden for poor third-highest in nation

Posted by Institute on Taxation & Economic Policy on May 7, 2019

From a tax perspective, Pennsylvania is the 48th worst state in the U.S. to be poor.

A WalletHub study calculated how much people with different income levels – low, middle, high – pay in taxes as a percentage of their total income.

They included sales and excise taxes, property taxes and income taxes.

Study: https://itep.org/wp-content/uploads/whopays-ITEP-2018.pdf

Quick summary: https://wallethub.com/edu/best-states-to-be-rich-poor-from-a-tax-perspective/11257/

First, the definitions

The Institute on Taxation & Economic Policy (ITEP) explains that many taxes — most property and sales taxes, some state and local taxes — are regressive.

That means people in lower- and middle-income brackets spend a larger percentage of their income for those taxes than do wealthier people.

For example, if you make $20,000 a year and pay $500 in a local tax, the tax is 2.5 percent of your total income. If you make $100,000, the tax is only one half of 1 percent of your total income.

It’s different than a federal income tax, for example, which sets a percentage based on your income.

That’s called a progressive tax: The less you make, the less you pay.

In the U.S., the poor pay more, percentage-wise

Overall, per the ITEP, the poor pay more of their income for taxes compared to the rich. The nationwide average is:

• 11.4% for the lowest-income people
• 9.9% for middle-income
• 7.4% for the top 1 percent

In Pa., we all pay more than the national average

Pennsylvania ranks near the bottom (48th) in percentage of income spent on taxes by poor people. Delaware is No. 1, out of 50 states and the District of Columbia.

However, Pennsylvania also ranks 47th for middle-income and 40th for highest paid folks. Alaska is 1st for both of those.

Here’s what Pennsylvanians paid toward taxes in 2018:

• 12.06% of total income by the poor
• 11.22% of total income by middle-income people
• 9.62% of total income by the top earners