Read the full report here. Briefly:

Charges that Washington has the nation’s most regressive state and local tax structure stem from a 2015 report by the Institute on Taxation and Economic Policy (ITEP). The ITEP analysis contains a number of methodological flaws that lead it to overstate the tax burden on low-income households nationally and, to an even greater extent, in Washington. In particular, our critique of the ITEP report identifies two major errors:

1. ITEP overestimates consumption spending by lower-income taxpayers relative to income, leading to an overstatement of the taxes they pay.

2. The ITEP treatment of Washington’s business and occupation tax causes it to overestimate the degree to which the tax is shifted onto lower-income taxpayers. Their treatment of personal and corporate income taxes levied in other states shifts relatively less of the burden to lower-income taxpayers.

We also point to a key principle of fiscal federalism (a theory allocating responsibilities among the three levels of government), which holds that redistributive tax policies are best enacted at the national level. Adding this dimension to the analysis leads to our third finding:

3. All state and local tax structures are regressive. But when the steeply progressive federal income tax system is considered, the overall federal-state-local tax burden is progressive in Washington and every other state, and the differences among the states represent smaller proportions of households’ tax burdens.

This report, of course, will not settle the debate about tax policy in Washington. Those who prefer a highly progressive tax structure may examine the data, accept that Washington is perhaps not the “most regressive” state in the nation, and still contend that Washington should adopt a more progressive tax system. States with an income tax typically rank as more progressive than those that lack one. Others may examine the data and conclude that, within the context of fiscal federalism and the expressed preferences of Washington voters, the state’s tax structure is satisfactory.

We recognize that the debate will be ongoing. Our hope is that this paper helps inform that debate.