State and Local Tax Burdens as a Share of Income

April 8, 2014

For the last 20 years, the Tax Foundation has analyzed the combined state and local tax burden on residents in the 50 states, aiming to show not how much revenue is collected, but how much income is lost by each taxpayer. These estimates take the total amount of state and local taxes paid by state residents (not only to their own government, but to other governments) and then divide that figure by each state's total income, say Liz Malm, an economist at the Tax Foundation, and Gerald Prante, an assistant professor of economics at Lynchburg College.

Using the most recent data available from the Census Bureau, Malm and Prante estimate the tax burdens for 2011.

  • Many state-local tax burdens as a share of income are very close to one another, and the states ranked in the middle of the list -- from Oregon (16th) to Georgia (34th) -- differ in the amount of burden by just 1 percentage point.
  • Over 25 percent of all state-local taxes are actually collected from nonresidents. Nationwide, on average, a taxpayer (using a per-capita income of $42,473) pays $3,064 in taxes to his home state and $1,152 in taxes to other states.
  • In looking at the states with the highest tax burden as a share of income, New York tops the list (12.6 percent), followed by New Jersey, Connecticut, California, Wisconsin, Minnesota and Maryland.
  • At the bottom of the scale are Wyoming (6.9 percent), followed by Alaska (7 percent), South Dakota (7.1 percent), Texas (7.5 percent), Louisiana (7.6 percent) and Tennessee (7.6 percent).
  • State incomes rose on average in 2011, creating lower burdens -- as a share of income -- than in 2010.

Tax collections differ from resident tax burdens because of tax exporting. The economic incidence of a tax looks at who ultimately has to bear the tax burden, whereas the legal incidence looks at who pays the tax to the government. Businesses bear the legal incidence of business taxes, while consumers bear the economic incidence (they will see higher prices due to an increased business tax).

Moreover, nonresidents often bear the burden of business taxes. Some states are specifically making efforts to target taxes at nonresidents in order to make new taxes more attractive to voters, with tax proposals aimed at the tourism industry -- taxing hotel rooms, rental cars, restaurant meals and the like.

Source: Liz Malm and Gerald Prante, "Annual State-Local Tax Burden Ranking FY 2011," Tax Foundation, April 2, 2014.

 

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