Want to pay less in taxes? Get out of the Northeast.
A new study shows that of the 10 states with the highest state and local tax burdens, seven are in the northeastern U.S. New York leads the way, with residents having paid 12.8 percent of their income in state and local taxes in fiscal year 2010, according to a new study from the Tax Foundation, a nonpartisan organization that researches taxes. The Empire State is followed closely by New Jersey (12.4 percent) and Connecticut (12.3 percent).
At the other end of the spectrum is Alaska, where residents only pay 7 percent of their income, followed by South Dakota's 7.6 percent and Tennessee's 7.7 percent.
Politicians often argue about whether high tax rates help or hurt the economy, but it's hard to draw conclusions about cause and effect based on this list, says Scott Drenkard, an economist at the Tax Foundation.
"States with low tax burdens often have low tax burdens because they don't have anything else that's attractive coming into that state," he says. So states may lower rates to attract people and business.
"In the short term certainly you can afford to raise taxes, but in the long term, if businesses can save substantial amounts of money by moving elsewhere, they're going to do it," he adds.
But states still need to have enough revenue to pay their workers and run basic social programs. And often, those revenues come from residents outside the state. The Tax Foundation's report counts how much people pay in state and local taxes, not where those taxes go. For example, residents of Iowa pay taxes in Florida when they travel to Disney World and buy Mickey Mouse ears, and a Chicagoan would pay taxes in Massachusetts for the second home she owns on Cape Cod. States that export natural resources likewise can export their tax burdens.
"Some states are able to shift significant portions of their tax burdens to nonresidents, with Alaska being the most aggressive. The Last Frontier is able to export over 75 percent of its tax collections to residents of other states, by virtue of taxes on oil extraction," says Elizabeth Malm, an economist at the Tax Foundation, in a release accompanying the report.
Here are the 10 states with the highest state and local tax burden as a share of income:
| Rank | State | State-Local Tax Burden |
|---|---|---|
| 1 | New York | 12.8% |
| 2 | New Jersey | 12.4% |
| 3 | Connecticut | 12.3% |
| 4 | California | 11.2% |
| 5 | Wisconsin | 11.1% |
| 6 | Rhode Island | 10.9% |
| 7 | Minnesota | 10.8% |
| 8 | Massachusetts | 10.4% |
| 9 | Maine | 10.3% |
| 10 | Pennsylvania | 10.2% |
And these are the 10 states with the lowest state and local tax burdens:
| Rank | State | State-Local Tax Burden |
|---|---|---|
| 50 | Alaska | 7.0% |
| 49 | South Dakota | 7.6% |
| 48 | Tennessee | 7.7% |
| 47 | Louisiana | 7.8% |
| 46 | Wyoming | 7.8% |
| 45 | Texas | 7.9% |
| 44 | New Hampshire | 8.1% |
| 43 | Alabama | 8.2% |
| 42 | Nevada | 8.2% |
| 41 | South Carolina | 8.4% |
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Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. You can follow her on Twitter or reach her at dkurtzleben@usnews.com.
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