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
- 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