A Look at Taxes by State
Recently, I was thinking about “best places to live” in the USA and I decided to take a look at taxes. Partially, so that I can understand if there’s some sort of connection between tax burdens, happiness, and productivity. Starting off, let’s take a look at the chart above.
I find it interesting that the bottom 50% of taxpayers actually pay very little in taxes, and perhaps even more interestingly, only the top 6–10% of income earners pay an equivalent share of their income to taxes. Which means that if you’re in the top 5%, you pay up to 2x your share of income to taxes. Compared with the bottom 90% of taxpayers who pay between 0.3% – 100% of their share of income. Basically, since the top 1% receive 20% of all income, you would expect that they pay 20% of all taxes, but in reality they actually pay 40% of all taxes (so effectively they are paying twice their share). And the bottom 50%, who control only 11% of the total income pool, provide only 3% of total tax revenue. If “money talks” then it’s a no wonder why rich Americans have more say on what’s done in Washington. If they collectively stopped paying taxes, the US Treasury would be 20% poorer*. And that’s just from the top 1% (people who make more than $540,000 per year).
Now, let’s start looking closer at the tax burdens per State.
The chart above shows the 10 States with the lowest tax burden, along with the average for the US as a whole ($5,755 per Capita). As we can see below, the State with the lowest tax burden (as 2019) is Tennessee (at just $3,368 per person per year). Compared to the State with the highest burden (New York at $9,987 per person per year), that’s a difference of $6,619. The income per capita is also different in those States ($48,676 vs $70,399; or a difference of $21,723). Clearly, the increase in wages pays for the more expensive tax bill. Still, as a percentage of income, New York residents pay twice as much as residents of Tennessee.
Generally, States that have a higher income per resident also tend to have a higher tax bill (and vice versa). Though there are some notable exceptions. For instance, Wyoming residents make slightly more (~10%) than the average across the USA but pay ~25% less in taxes. And New York, pays almost twice as much in taxes as the average American across the country, yet only provides ~25% more income.
*According to “thebalance.com”, which says that Individual Income Taxes make up $1,932 (billions) out of $3,863 (billions) in total federal revenue. Making IIT’s share of total revenue at 50%.
