An often hidden factor when evaluating the cost of living in a geographical area is taxes. These mandatory payments imposed on the taxpayer by governmental entities are used for funding myriad public expenditures.
One’s knowledge of taxes can mean the difference between a lifestyle of plenty and one of poverty. It’s a well-known fact that the wealthy typically pay less in taxes. Tax expert and author of Tax-Free Wealth Tom Wheelwright is fond of saying that the federal tax code is our friend. In other words, the government according to Wheelwright want everyone to benefit from our nation’s tax advantages because it ultimately fuels economic wealth for all. This is a fact that the wealthy realize but the poor generally don’t.
With the tax deadline rapidly approaching, low- and middle-income families can expect to pay higher effective tax rates than the rich, according to a recent report by the personal-finance website WalletHub.
In identifying the states where people in different income brackets spend the most and least on taxes, WalletHub calculated the share of one’s income that he or she contributes toward sales and excise taxes, property taxes and income taxes.
Here is the breakdown:
HERE is a deeper dive into the summary findings
The overall tax burden for low-income earners is three times higher in Washington than in Delaware.
The overall tax burden for middle-income earners is three times higher in New York than in Alaska.
The overall tax burden for high-income earners is four times higher in New York than in Alaska.
Jill Gonzalez, the Communications Director at WalletHub is a public policy expert and a financial literacy advocate. Her appearances include NBC Nightly News, Fox Business Network, Wall Street Journal Live and C-SPAN’s Washington Journal. She has been a guest on NPR’s Marketplace, CBS Radio, and ESPN Radio.
Asked about the biggest surprise from the findings of this report, Gonzalez had this to say:
“This study backed up how progressive and regressive tax systems operate in our country, so nothing was too surprising.”
In terms of a state like Nevada, which is among those with no personal income taxes, Gonzalez notes:
“Nevada has some of the lowest individual tax rates across the board. The state’s revenues come mostly from taxes on the gaming industry, which allows authorities to lower the burden on its residents.”
On the other hand, states like California and New York, despite their high taxes continue to be popular places to live and work. Says Gonzales:
“Both provide plenty of jobs and earning opportunities, as well as a higher quality of life. Though the tax burdens are among the highest, especially in New York, people are drawn to these states both for career opportunities, as well as better government-provided services.”
She notes that in general, states with progressive tax systems are viewed as fairer:
“The idea is that higher income earners should be able to afford a higher tax burden. Additionally, states with lower property taxes are also considered fairer. This is because property taxes rise along with home values, obligating people to pay more money without having earned more.”
The states that are best equipped to weather economic downturns says Gonzalez are those that do not rely on a single stream of revenue.
“The states that base their taxes across all types of revenues are also less vulnerable in the event of a financial crisis. While we did not analyze the way state authorities use tax revenues in this report, they are usually directed towards education, infrastructure, and various other investments.”
In conclusion, Gonzales says that the growing migration between states can be viewed from two different perspectives:
“For example, people who are highly skilled and educated relocate for better job opportunities mostly in states on the East and West Coast. Typically these are states with higher taxation. On the other hand, retirees would pay more attention to the level of taxation, and choose to move to states with lower taxes.”