Missouri, Texas Tax Burdens Even Out

September 13, 2013

A recent spat between Texas Gov. Rick Perry and Missouri Gov. Jay Nixon over the tax and economic advantages in their respective states left many wondering whether Missouri has an advantage over Texas due to its lower property and sales taxes, or can Texas claim the advantage in the absence of a state income tax? Thanks to the National Center for Policy Analysis State Tax Calculator (whynotmove.org), the issue can be put to rest, says Pamela Villarreal, a senior fellow at the National Center for Policy Analysis.

  • The State Tax Calculator is a first-of-its-kind tool to help people determine their tax burden when moving from one state to another.
  • It is not a typical cost-of-living calculator -- the software is based on a proprietary financial planning model developed by NCPA Senior Fellow Laurence Kotlikoff.
  • In comparing two states, all you need to do is input a few variables: birthdate, annual income, marital status, the state that you currently live in and the state to which you would like to move.
  • Additional "optional" variables are current savings account and retirement account values, home values for both states, current and anticipated monthly mortgage amounts and length of mortgage in your current state and an estimate for your destination state.

So who is right? Gov. Nixon or Gov. Perry? The answer is both are right. The tax advantage of one state over another depends on an individual's circumstances.

  • Average and lower-income Missouri residents probably won't lower their tax burden by moving to Texas. The reason? Texas' higher property taxes and sales taxes offset any escape from the Missouri income tax.
  • For instance, a 40-year-old married couple earning $50,000 a year ($25,000 each) and with a 20-year mortgage balance of $100,000 on a $150,000 home will have about $600 less spendable income per year due to the property tax in Texas outweighing their state income tax liability in Missouri.

But Perry is correct when it comes to singles and couples with above average incomes.

  • For example, a 30-year-old individual earning $100,000 a year moving from Missouri to Texas will gain an extra $3,000 in annual discretionary income. If this income is saved he will accumulate $317,000 in additional wealth over his lifetime.
  • A 40-year-old individual earning $500,000 a year will gain an additional $14,353 each year and a lifetime wealth accumulation of more than $1 million.
  • A 40-year-old married couple earning $1 million will have additional discretionary income of more than $28,000 per year. If saved, this amounts to $2.43 million over their lifetimes.

Source: Pamela Villarreal, "Missouri, Texas Tax Burdens Even Out," Austin American-Statesman, September 11, 2013.

 

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