Washington state taxpayers are paying hundreds of millions more in taxes than they need to, according to a new study from the Institute on Taxation and Economic Policy and United for a Fair Economy. The report, "Leaving Money on the Table," which was released April 12, argues that simply reducing the state's sales tax and replacing that revenue with an income tax would save Washington state taxpayers between $162 and $654 million. Here's how:
The report analyzes seven states without an income tax, including Washington state. It finds that states without an income tax do not spend less than other states that do -- instead, they simply rely more heavily upon sales taxes and property taxes to make up the difference. Because federal tax breaks are skewed toward the 43 states that have an income tax, taxpayers in states without an income tax end up paying more taxes for fewer state and local government services.
"Uniquely among the major state taxes," the report claims, "the income tax can be substantially 'exported' to the federal government due to a federal tax break allowing federal itemizers a deduction for their state and local taxes. This federal tax rule amounts to a matching grant from the federal government to states."
As a result, a "tax swap"