When it comes to money, it’s not how much you make that matters, it’s what you keep. Numerous expenses hit pocketbooks across the nation, but taxes are often the largest financial burden on Americans. In addition to federal income taxes, the average family pays thousands of dollars in state and local taxes each year. However, tax bills can vary significantly between states.
WalletHub recently analyzed how state and local tax rates compare to the national median in all 50 states as well as the District of Columbia. The purpose was to determine which states pay the highest and lowest tax rates, and to see how each state stacks up against the national median. This study was based on four different types of taxation: real estate taxes, state and local income taxes, vehicle property taxes, and sales and excise taxes.
“Economic theory expects people to consider taxes when deciding where to live, but most studies show taxes only tangentially influence these decisions,” explains Stephanie Hunter McMahon, professor of law at the University of Cincinnati College of Law. “For example, schools drive the decision for many people as among localities and local property taxes are the primary source of local school funding. Taxes are, therefore, more influential for what they do or do not provide rather than the rate itself. This is to be expected because state and local taxes vary greatly, and these taxes are really payments for the goods and services state and local governments provide to the taxpayer and other members of the community.”
Which states have the lowest taxes?
Interestingly, taxpayers in the states with the highest taxes pay three times more than those in states with the lowest taxes. Red states impose lower taxes, with an aggregate rank of 21.75, compared to 29.78 for blue states. We’ve already taken a look at the states with the highest taxes. Now, let’s see which 10 states have the lowest state and local taxes, according to WalletHub.