Best and Worst States for Taxes

- Posted by Editor in Economic Development in Taxes

Connecticut residents annually pay an average $9,099 in state and local taxes, or 31% more than the national average according to a new report.

The financial site WalletHub ranks the state 48th in the country for its state and local tax burden. Only Nebraska, California, and New York (where taxpayers pay an average $9,718) ranked below Connecticut.

And, when adjusted for cost of living, Connecticut fell to 49th among the 50 states and the District of Columbia.

Wyoming, where residents pay an average $2,365 annually (two-thirds less than the national average), has the lowest state and local tax burden in the country. The 10 best states:

  1. Wyoming, $2,365
  2. Alaska, $2,791
  3. Nevada, $3,370
  4. Florida, $3,648
  5. South Dakota, $3,766
  6. Washington, $3,823
  7. Texas, $5,193
  8. Delaware, $5,195
  9. North Dakota, $5,588
  10. Colorado, $5,674

Measuring tax burdens

In ranking state tax burdens, WalletHub measured taxes on income, real estate, vehicles, sales, fuel, food, and alcohol.

Wyoming, Alaska, Nevada, Florida, South Dakota, Washington, and Texas have no state income tax.

Delaware is among the five states with the lowest real estate, car, sales, and alcohol taxes; Alaska has the lowest vehicle taxes and has one of the five lowest fuel and sales taxes.

The states with the worst per capita tax burdens:

  1. New York, $9,178
  2. California, $9,509
  3. Nebraska, $9,450
  4. Connecticut, $9,099
  5. Illinois, $9,006
  6. Wisconsin, $8,975
  7. Vermont, $8,838
  8. New Jersey, $8,830
  9. Iowa, $8,788
  10. Maine, $8,622

Economic mobility

State and local tax burdens directly impact economic mobility--the ability to move up and down the income ladder--according to Harvard and Berkeley university researchers collaborating on The Equality of Opportunity Project.

They found “a significant correlation between both measures of mobility and local tax rates.”

Taxes play an important role in determining a state's overall business climate and rate of economic growth.

Five of the states with the lowest state and local taxes feature among the top 10 states in CNBC's America's Top States for Doing Business 2013.

North Dakota also posted the highest percentage GDP growth of any state in 2012 according to the most recent report from the Bureau of Economic Analysis. Texas was second and Washington fourth.

And CNBC ranked three of the states with the highest taxes--California, Connecticut, and New Jersey--in the bottom 10 in its annual study of state business climates.

Three years ago, Connecticut lawmakers passed the largest tax increases in state history. Our tax system now is the subject of much discussion at the State Capitol.

Changes in Connecticut?

The legislature’s Finance, Revenue and Bonding Committee likely will soon endorse a comprehensive, two-year analysis of the state's tax system.

“Every session there are more and more proposals to adjust or repeal or add different taxes,” committee co-chair Patricia Widlitz (D-Guilford) told the Connecticut Mirror.

“It doesn’t make any sense to address all of these individually without looking at how the entire tax package fits together.

“We certainly want to keep in mind the desire of people to live here and stay in Connecticut, and what kind of a tax system we will need to make that possible."

House Speaker Brendan Sharkey (D-Hamden) also seeks major change with his proposal for changing the way colleges and hospitals are treated under the local property tax system.

Discussion

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