Post by DoubleDeuce on Mar 6, 2003 11:09:08 GMT -5
Best and worst states for taxes
First, though, it's important to understand that judging the severity of a state's total tax bite — business, property and all other taxes combined — is not the straightforward exercise it might appear to be. Here are two caveats to keep in mind when searching for a tax-friendly state:
State-by-state rankings based on the combined federal, state and local tax bill often tell you less about a state's fiscal policies than about the wealth of your neighbors and how that impacts tax rates.
Unless a state-by-state analysis takes into account who actually pays their taxes, and not simply where it is levied, it can sometimes be more misleading than insightful. In other words, "A tax burden is different from tax collection," says Bill Ahern, a spokesman for the Tax Foundation, a nonprofit advocacy group.
Strip out federal taxes for greater accuracy
The problem with combining federal, state and local taxes is that federal levies can skew the results badly.
A state's federal tax burden rises or falls with the average federal rate paid by its residents. So, if a disproportionate share of the state population is made up of wealthy individuals who are taxed at the highest marginal rate, the state will show a disproportionately large total tax bill.
The best and worst states for taxes
To assess relative state tax burdens accurately, the Tax Foundation adjusts National Income and Product Account data collected by the U.S. Department of Commerce's Bureau of Economic Analysis. One important comparison the foundation makes is of the total tax burden in each state (including federal taxes) to just the state/local tax burden. In both cases, taxes are measured as a percentage of income.
When federal taxes are included, the 10 states that imposed the lowest total tax burdens in 2002 were:
State Income Tax (in %)
1. Alaska
2. Oklahoma
3. (tie) West Virginia
Alabama
5. Tennessee
6. North Dakota
7. South Dakota
8. (tie) Mississippi
Montana
10. Louisiana 27.0
Meanwhile, the highest total taxes were levied in:
State Income Tax (in %)
50. Connecticut
49. Washington
48. New York
47. New Jersey
46. Wyoming
45. Wisconsin
44. Minnesota
43. (tie) Michigan
Illinois
41. California 36.7
Taking federal taxes out of the equation yields a decidedly different result.
When only state and local levies are considered, the 10 tax-friendliest states of 2002 were:
State Income Tax (in %)
1. Alaska
2. Tennessee
3. New Hampshire
4. Texas
5. (tie) Alabama
Colorado
South Dakota
8. (tie) Nevada
Florida
10. Oregon 6.3
The states with the most onerous state and local taxes were:
State Income Tax (in %)
50. Maine
49. New York
48. Wisconsin
47. Hawaii
46. (tie) Minnesota
Rhode Island
44. (tie) Utah
Ohio
42. Vermont
41. Connecticut 12.8
Only four states (Alaska, Alabama, Tennessee and South Dakota) make both top 10 lists, and only four are in both bottom 10 tallies (Connecticut, New York, Wisconsin and Minnesota).
