With Tax Day approaching on April 15 and 72% of Americans thinking their current tax rate is too high, the personal-finance website WalletHub today released its 2024 Tax Burden by State report and its 2024 Tax Facts infographic, as well as expert commentary.
In order to determine which states tax their residents most aggressively, WalletHub compared the 50 states based on the three components of state tax burden — property taxes, individual income taxes, and sales and excise taxes — as a share of total personal income.
Tax Burden in New York (1=Highest, 25=Avg.):
- 1st – Overall Tax Burden (12.02%)
- 5th – Property Tax Burden (4.36%)
- 2nd – Individual Income Tax Burden (4.63%)
- 31st – Total Sales & Excise Tax Burden (3.03%)
For the full report, please visit:
https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494
“It’s easy to be dismayed at tax time when you see just how much of your income you lose. Living in a state with a low tax burden can alleviate some of that stress. Some states charge no income tax or no sales tax, although all states have some form of property taxes and excise taxes.”
—
“California has the highest individual income tax burden, while Maine has the highest property tax burden, and Washington has the highest sales and excise tax burden. When considering all types of taxes together, New York has the highest overall burden.”
– Cassandra Happe, WalletHub Analyst
Expert Commentary
What state and local tax instruments are most fair? Least fair?
“Most experts regard a progressive income tax with higher rates for higher-income people as most fair; a sales tax is deemed least fair because of its regressive impact on the poor. Twenty-nine states have a progressive income tax. Virtually all local wage or earned income taxes are flat. However, polls show that most citizens regard a sales tax as most fair. Few people like tax increases, but if taxes must be increased, most voters prefer a sales-tax increase over increased income or property taxes. Taxing property at different marginal rates would probably be viewed as unfair by most property owners. Such a tax system could increase political pressure from high-income people to lower property taxes and lead high-income residents to exit the jurisdiction. Enacting a property-tax circuit breaker can reduce the regressive impacts of the tax. Consideration might also be given to enacting a split-rate tax by which land is taxed at one rate and structures on the land are taxed at another rate.”
John Kincaid – Professor; Director of the Meyner Center for the Study of State and Local Government, Lafayette College
“The income tax was based on the idea that people who can pay more should pay more, as a matter of fairness, because the extra dollar you earn when you already have a million dollars is worth far less to you than an extra dollar if you earn only $100. So, in that sense, the income tax is seen as somewhat fair. On property taxes, we often see fairness in the idea that those who have property worth more should pay more because they have greater wealth accumulated. The nub of it is that often these are real property taxes, and thus there are often liquidity crunches for people who are “house poor” (i.e., have a lot of value in property and potentially have to pay a lot, but do not have income there). We could make it better for such people, but that adds complexity. Sales and use taxes are often seen as somewhat unfair because they are based on consumption and not on the ability to pay or wealth, and as a percentage of wealth or income, poorer people consume more. But that has led to a complex system of items that are exempt from sales taxes, like groceries…Generally, experts see that the best means of balancing these is to use all three instruments: income, sales/use, and property. Finally, it is important to note what the tax revenues are used for by the state in analyzing some level of fairness.”
Blaine G. Saito – Assistant Professor, Ohio State University
What makes some state and local tax systems better able to weather economic downturns?
“There are several factors that can help insulate state and local governments from economic downturns: preparation – this means managing debt and building reserves, or rainy-day funds, in preparation for downturns. There is also some debate in the literature, but having diversified revenue streams can help and, interesting[ly], having greater reliance on more resilient taxes such as property taxes, can be effective.”
Craig S Maher – Distinguished Professor; Director, School of Public Administration, University of Nebraska at Omaha; Co-Editor, Public Finance Journal
“Revenue diversification, that is, a mix of different taxes, is ordinarily the best way to weather economic downturns because recessions affect different taxes differently. Sales tax revenues usually decline during downturns but property tax revenues remain fairly stable. States that rely heavily on income tax revenue from the wealthy often experience steeper drops in revenue during recessions than states less reliant on high-income taxpayers. Drops in stock prices and dividends and big capital gains losses will reduce income tax revenue.”
John Kincaid – Professor; Director of the Meyner Center for the Study of State and Local Government, Lafayette College
How has inflation affected local governments’ tax revenues?
“Inflation has affected things in complex ways. Sales tax receipts, for example, go up when you have prices go up. But people may buy less, and so that can reduce the revenue. It really depends then. Income taxes too could go up if inflation also leads to wage gains, or as we have seen, wage gains outpace inflation. Property taxes depend on how the property market moves, which may or may not be correlated to overall inflation numbers. The hard thing is that while inflation may have increased some tax revenues, governments also have to pay more to do the same. So, it can often come out as a wash.”
Blaine G. Saito – Assistant Professor, Ohio State University
“It is a double-edged sword. For governments reliant on income taxes, we have experienced growth in salaries due to the tight labor market, which increases those taxes. For government[s]reliant on sales, increases in prices means more sales tax collections, but purchasing power has declined and forced many households to cut back on spending, which lowers tax collections. Similarly, inflation has produced growth in housing values, which means, generally, more tax collections. Unfortunately, increases in interest rates [have]lowered the available housing stock, increasing barriers to affordable housing and rents.”
Craig S Maher – Distinguished Professor; Director, School of Public Administration, University of Nebraska at Omaha; Co-Editor, Public Finance Journal
