This June, I will finish my Ph.D. in Economics at the University of California, San Diego. I am currently interviewing for a post-graduate employment and will likely move to another city. Which city should I move to? Of course, much of this has to do with personal preference. Do you like warm weather or seasons? City or rural? Are there family considerations? All these idiosyncratic issue certainly affect location choice.
However there is one issue that is important to all workers: taxes. Most people prefer to live in a low tax state. But what is a low tax state? Texas has no income tax, but does has have a 6.25% sales tax. Oregon has no sales tax, but does have an income tax of 8%-9%. Although Maryland’s state income tax is low (around 4%), the local income taxes average about 3% of total income. Each state’s income tax rate depends on your tax bracket, plus there are state property taxes, estate taxes, etc. This is getting complicated!
Fortunately, the Healthcare Economist has compiled a spreadsheet describing the tax rates of each state (see Table). The data are from The Tax Foundation. I have estimated the average tax rates in different states for individuals earning $60,000 and $100,000. The aggregate tax rates include state and local income taxes as well as sales taxes. The do not, however, include information on property taxes.
Which states have the highest tax burdens? Take a look at my rankings:
- Ranking – State Tax Burden if you earn $60,000/year.
- Ranking – State Tax Burden if you earn $100,000/year.
I find that Alaska, South Dakota, Wyoming, New Hampshire, Delaware, and Montana have the lowest tax rates. On the other hand, the states with the highest tax burdens are Maryland, California, Tennessee, Idaho, Minnesota, DC, and Kentucky.
Different people are affected by different tax rates. Retirees would prefer states with low sales tax and high income taxes. Young workers saving in a for the future would prefer lowering income taxes rather than sales taxes. Are taxes good or bad? There is no shortage of opinion:
- “There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for you.” — Robert A. Heinlein
- “Taxes, are the dues that we pay for the privileges of membership in an organized society.” — Franklin D. Roosevelt
Data Sources:
- Sales Tax Data: http://www.taxfoundation.org/taxdata/show/245.html
- State Income Taxes: http://www.taxfoundation.org/publications/show/228.html
- Local Income Taxes: http://www.taxfoundation.org/files/localincometaxes-20080711.pdf
Your data source is a little misleading — Tennessee’s income tax only applies to investment interest: http://www.tennessee.gov/revenue/tntaxes/indinc.htm
The sales tax data appears to be out of date, at least for HI: it is 4.712% on Oahu. If one state has incorrect data, I suspect some other do. Of course, that only matters if you are on the margin b/t two states. Here is some more tax information:
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States
Also, you are not counting liquor taxes, which I believe are separate from standard sales taxes. Beer drinkers pay a lot here in HI, which is why I started to brew my own beer. CA also has an above-average liquor tax.
While I cannot comment on brewing my own beer, nor distilling my own port, I have lived in both Texas and CA. CA has a higher sales tax *and* income tax. Why? Because CA requires online retailers to charge for the sales tax over the internet. TX does not. CA does have higher liquor prices in bars (but, in my experience, you basically just pay for “top shelf” no matter what). Just remember that state taxation of internet purchases (goods or services, an especially important distinction for businesses) is different from a sales tax (in effect). Taxation is composed of Federal/State Income/State Sales Tax/State Internet Sales Tax in the modern economy. The statutory schemes will catch up eventually…
Hopefully this will end of the myth of Taxachusetts.
Come to Boston 😉
$60K and $100K and worried about marginal tax costs?
Alaska has high property taxes. Even if you don’t buy, you still pay via higher rents to your landlord.
I’m a little worried about an economist who leaves property taxes out of the picture when calculating the tax burden….and differences in property tax would change this list rather a lot, I suspect (as a property owner in New Jersey and California, the latter paying taxes on its value in 1972+1% inflation since!)
Your income tax figures are way off when looking at the total cost of living income is only part of the story and how can you ignore the property taxes in each state
An example is Texas which it has no state income tax has about 50 of the top 100 highest property tax cities in the USA .
I think ideal scenario might be live in Vancouver Washington which has low property taxes and no state income tax, drive over the Columbia river and
do all your shopping in Portland Oregon which has no sales tax. Problem with Oregon is they make up the difference in no revenue from sales taxes by having high property taxes. So you can not leave property taxes out of the overall analysis. Then again trying to find the perfect place to live, you still have to find an income or job. Both Washington and Oregon have some of the highest min wages 9$+ hr but few people leave their jobs so moving there and finding work is problematic. Calif. has more jobs but also higher taxes and more cost of living problems like un-affordable housing costs from San Diego to San Fransisco. Fresno is cheaper but limited jobs unless you are working in agriculture. As Bart Simpson would say: you are damned if you do and damned if you don’t!