By Elizabeth Napolitano
/ MoneyWatch
Taxpayers in some states are carrying a far heavier burden than others, according to a new report.
The data, from personal finance website WalletHub, shows that while Americans on average pay $11,000 in federal taxes each year, the amount they pay in overall taxes can vary widely based on where they live. Residents of states with the highest taxes forked over double their share of annual income as those in the lowest taxed ones, due to disparities in state and local rates, the report shows.
Researchers calculated residents' tax burden, or the percentage of income consumed by state and local taxes, by adding up three types of tax types: property taxes, individual income taxes, and sales and excise taxes. They computed the three types of taxes for each state using median U.S. household income, home and car values, and household spending data.
To keep more of your paycheck out of Uncle Sam's pockets, head to Alaska, where the overall tax burden is 5.06%, according to the report. Those who are yearning to live in New York will have to pay for the privilege — 12.47% of your income, to be exact.
Here are the U.S. states with the highest and lowest tax burdens as ranked by WalletHub:
States with the highest tax burdens:
- New York (12.47%)
- Hawaii (12.31%)
- Maine (11.14%)
- Vermont (10.28%)
- Connecticut (9.83%)
- New Jersey (9.76%)
- Maryland (9.44%)
- Minnesota (9.41%)
- Illinois (9.38%)
- Iowa (9.15%)
States with the lowest tax burdens:
- Alaska (5.06%)
- Delaware (6.12%)
- New Hampshire (6.14%)
- Tennessee (6.22%)
- Florida (6.33%)
- Wyoming (6.42%)
- South Dakota (6.69%)
- Montana (6.93%)
- Missouri (7.11%)
- Oklahoma (7.12%)
Elizabeth Napolitano is a freelance reporter at CBS MoneyWatch, where she covers business and technology news. She also writes for CoinDesk. Before joining CBS, she interned at NBC News' BizTech Unit and worked on the Associated Press' web scraping team.
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As someone deeply familiar with tax systems, financial analysis, and regional disparities in taxation, let's delve into the concepts and details presented in Elizabeth Napolitano's article from MoneyWatch.
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Tax Burden: This refers to the proportion of one's income that goes towards paying various types of taxes. In this context, the article discusses the tax burden at both state and local levels for U.S. residents.
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Federal Taxes vs. Overall Taxes: While federal taxes are consistent across the U.S., state and local taxes can vary significantly. The article emphasizes that Americans, on average, pay around $11,000 in federal taxes annually. However, the overall tax burden can be much higher or lower depending on where one lives.
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Disparities in State and Local Rates: States have the autonomy to set their tax rates, leading to a disparity in the tax burdens carried by residents of different states. This discrepancy is primarily due to variations in state income tax rates, property taxes, and sales and excise taxes.
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Components of Tax Burden: The tax burden is calculated by considering three primary types of taxes:
- Property Taxes: Based on home values.
- Individual Income Taxes: Derived from median U.S. household income.
- Sales and Excise Taxes: Linked to household spending data.
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WalletHub's Report: WalletHub, a personal finance website, conducts an analysis to rank states based on their tax burdens. This analysis provides a comprehensive view, considering the three types of taxes mentioned above.
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High Tax Burden States: The article lists states like New York, Hawaii, Maine, Vermont, and others with the highest tax burdens. These states have residents paying a significant portion of their income towards state and local taxes.
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Low Tax Burden States: Conversely, states like Alaska, Delaware, New Hampshire, Tennessee, and others have a lower tax burden, meaning residents in these states retain a more substantial portion of their income.
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Implications for Taxpayers: The data presented in the article serves as a guide for taxpayers, helping them understand the financial implications of residing in different states. For instance, individuals considering a move might weigh the benefits of lower living costs against potentially higher tax burdens.
In summary, Elizabeth Napolitano's article sheds light on the significant variations in tax burdens across U.S. states, emphasizing the importance of understanding these differences for financial planning and decision-making. This analysis draws from credible sources like WalletHub and provides readers with actionable insights into state-specific tax landscapes.
