I was sitting around the table for Christmas surrounded by family from various parts of the country. We were talking about California, where I currently live, and the high tax rates. California taxes came up. Someone stated we were not worse off then Massachusetts and I argued if I moved back to my home state of Tennessee my tax situation would be even better (no state income tax!). The conversation continued and I got to thinking, does California have the highest taxes?
Perception of California taxes baed on total tax revenue
At the end of the day it depends on perception. If we look at total tax revenue then California kills it as seen in the below graph. If this was a competition then California is a professional athlete juiced up on steroids while everyone else is playing in the junior varsity league. So yes, per this measure, California is the highest taxed state, bringing in the most revenue.
Per capita taxes
Another way to look at tax burden is the taxes per capita. This would average out the cost of taxes among all individuals in the state. It does not account for a person’s individual income. This may not be the most applicable way to evaluate tax burden for a high-income earner, but is interesting nonetheless.
If we evaluate taxes per capita you can see that California is number 17. New York is the winner bringing in more taxes per person then any other state (number 2 by just revenue taken). Interestingly, some of the states on the list of taxes per capita are surprising. For instance Wyoming, a no income tax state, is number 3 on the list taking all of its revenue from sales and property tax. Louisiana, my former home is also well above California in taxes per capita. Finally, Utah, a state we considered moving too also is higher than California on the taxes per capita.
Inefficient with our money
If you think about it, these states that have higher taxes per capita are less efficient with our money. They are taxing the citizens in various ways and then utilizing it. For instance, Tennessee is at the bottom of the list, bringing in fewer taxes per person living there. I would argue that the roads, public services, and schools in Tennessee are similar to the ones provided in New York, but cost less to build.
The differences in spending may exist due to costs of upkeep if public services on health care and other public services provided but the poor, but even California, which is known as a great supporter of public services, is more efficient with its tax dollars than many states. The difference may also be cost of maintenance. For example, I suspect roads in Massachusetts, with their annual snow fall, may be more expensive to maintain then those in California.
Poor or low-income earner
How about for the poor or low-income earner? Sales tax is the biggest taxable item for low-income individuals. Interestingly, southern states round the top 3 with Alabama, Louisiana, and Arkansas all with tax levels above 11%. California is #9 on the list of states with a combined sales tax of 10% with Tennessee right below it. At the bottom of the list are Delaware, Montana, New Hampshire, and Oregon all with a 0% sales tax. The biggest culprit states are those that tax food. Louisiana is the biggest culprit at 7% max tax on groceries with Tennessee as the second at 5%. Georgia rounds off the top 3 with a 4% max tax on groceries. Kudos to Hawaii, Idaho, Kansas, Oklahoma, South Dakota, and Wyoming who tax food but give an income tax credit to compensate poor households for a basic human cost.
How about income tax? This affects the high-income earners more than poor individuals. State income taxes are quite variable with some states having none (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming) and others having up to 10 brackets (California and Missouri). The states with the highest rate at the highest bracket are California (13.3% at $1,000,000 bracket), Hawaii (8.25% at $96,000), Iowa (8.98% at $69,930), Minnesota (9.85% at $259,400), New Jersey 8.97% at $500,000, Oregon 9.9% at $250,000, Vermont 8.95% at $421,900, and District of Columbia 8.95% at $1,000,000). This does not really help us. So instead, lets look at taxes paid for an adjusted gross income of $200,000 (an average physician salary) by state.
Tax form calculator
Using a tax form calculator, California ranks 3rd highest for state income taxes among a $200,000 earner with $10,350 in exceptions from their salary. Hawaii and Oregon tax these individuals at a higher rate. Still at $15,693, the state taxes are pretty high. My other prior homes include Tennessee ($0), Louisiana ($7,711), and Massachusetts ($10,171). California is higher than these states for sure.
Every states taxes its citizens
So this is a lot of info, what’s the point of all this. Well I guess the point is to remember that every state likes to tax its citizens. Therefore, when deciding where to move (particularly if it is for cost savings) look at the total picture. Look at state income tax for your income, sales tax, and property tax. What is a good state for some to live in maybe a terrible state for you to live in! As for California I am glad it is not necessarily the most expensive per capita but I am sad to know how much of my income goes to state income taxes. Someone told me you have to “pay to play” here in Cali and that seems to be an accurate statement.
What are your thoughts on taxes and the cost of living in various states?