Nevada’s tax structure is the nation’s 5th most regressive, report finds

Nevada’s poorest residents are taxed at effective rates more than four times higher than its wealthiest residents, according to a new report from the non-partisan Institute on Taxation and Economic Policy.

That level of tax disparity is the 5th highest in the nation, ITEP found. Only Florida, Washington, Tennessee and Pennsylvania were worse for their poorest residents.

The vast majority of states have regressive tax structures, according to the report, which found that nationwide the lowest 20% of income earners face a state and local tax rate nearly 60% higher than the top 1% of households.

But disparity is more pronounced in Nevada, where the top 1% of earners pay 2.8% of their income on taxes while the poorest — those in the bottom 20% of earners — pay 11.9%.

For middle-income families — those within the middle 60% of the income scale — 8.4% of their income goes to taxes. That is three times higher than the effective rate paid by top earners.

“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet we see that in an extreme way in Nevada,” said Carl Davis, ITEP’s research director.

Heavy reliance on sales and excise tax is a significant contributor to taxpayer disparity, ITEP found. Eight of the 10 most regressive states derive more than half of their tax revenue from sales and excise tax. Nationally, sales and excise tax make up one-third of revenue.

In Nevada, sales and use taxes are by far the largest single category of revenue for the state’s general fund, garnering nearly twice as much as the next largest source, the gaming tax.

Nationwide, taxpayers within the lowest quintile of income earners pay 7% of their income to sales and excise tax, compared to 4.8% for middle-income earners, and just 1% for the top 1% of earners.

States with the least regressive tax structures derive more of their revenue from income taxes.

ITEP noted that six of the 10 most regressive tax states do not have a broad-based personal income tax, adding that “the absence of an income tax makes it all but impossible for these states to counterbalance these regressive levels.”

Nevada has no personal income tax.

The report noted that non-tax revenue — such as fines and fees for toll roads, public parking or courts — could not be included in their analysis because they are collected outside of the tax code. Many of these public revenue sources disproportionately impact low-income households.

Nevada’s tax structure was considered the 5th most regressive in 2018, the last time ITEP released their “Who Pays?” report. Changing tax revenue in Nevada can be a politically onerous endeavor — both because the governorship and state legislature are often controlled by different parties and because of a requirement that any legislation raising new taxes must pass by a two-thirds vote instead of a simple majority.

Elsewhere in the country, New Mexico moved 18 spots in the correct direction after it made “reforms to refundable credits and more robust taxation of top earners” and Massachusetts moved 10 spots “primarily through voter approval of a higher income tax rate on millionaires,” according to the report.

On the other end of the spectrum, several states, including Silver State neighbors Arizona and Idaho, worsened disparities between taxpayers by implementing changes that benefited the most affluent.