Looking at taxes across the U.S., we see big differences between states. A state's tax burden is how much taxes its people pay compared to its economic output. In 2022, the total tax burden in the U.S. is about 11.2 percent of the national product. But, what people actually pay can change a lot based on where they live.
New York has the highest tax burden, with 15.9 percent of its economy going to taxes. Connecticut and Hawaii are close behind at 15.4 percent and 14.9 percent, respectively. On the other end, Alaska, Wyoming, and Tennessee have the lowest burdens, at 4.6 percent, 7.5 percent, and 7.6 percent. Since 2020, tax burdens have gone up due to the pandemic, reaching their highest since 1978.
"Tax exporting" is key to understanding state taxes. It means some taxes paid in one state are actually paid by people in another. Alaska, for instance, gets about 60% of its taxes from people living elsewhere. Places like Florida and Nevada tax tourists, which helps lower taxes for locals. The actual cost of a tax can fall on different people than who pays the bill3. This shows how taxes can move around the economy, affecting more than just the immediate payer.
The tax burden varies a lot across states, with big differences at both ends. Some states are better at shifting their tax costs to others through economic activities and tax policies. This shows why it's important to understand how state taxes work and their effects on people and the economy.
The economic landscape is changing, showing big differences in state tax burdens across the U.S. Some states have very high taxes, while others keep their taxes low. It's important to know these differences for people and businesses dealing with state taxes.
In 2022, New York, Connecticut, and Hawaii had the highest tax burdens. They have high income taxes, property taxes, and sales taxes. This makes them some of the most taxed places in the country.
Alaska, Wyoming, and Tennessee had the lowest tax burdens in 2022. They have a more favorable tax setup. They often get money from things like natural resources, tourism, and sales taxes.
The tax burden affects people and businesses a lot. It can change where they live, work, and invest. High-tax states need to look at their taxes and try to make them more fair. Low-tax states should make sure their taxes work for their people and the economy.
Understanding state taxes is key as the tax system changes. By looking at the differences in taxes across the country, we can learn a lot. This helps us see what affects taxes and what it means for the economy.
State income tax is a big part of the taxes many Americans pay. It's different from the federal income tax because rates and rules change from state to state. In 2021, states and local governments made $545 billion from individual income taxes, which was 13% of their total income.
The highest state income tax rates in 2023 range from 2.5% in Arizona to 13.3% in California. Hawaii, New York, and New Jersey also have rates over 10.75%. Some states like Arizona, Indiana, North Dakota, Ohio, and Pennsylvania have rates under 4%. Interestingly, 10 states use a single tax rate on all income, and Hawaii has the most tax brackets with 12.
Not every state has an income tax. As of 2022, eight states don't have an income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire is also ending its tax on interest and dividend income, and will join these states in 2027. These states often use sales tax or property tax more to fund their governments.