Congratulations, residents of the greater New York City metropolitan area! You already know you live in the nation’s epicenter of culture and business. A new study reveals that you also reside in the most heavily taxed region in the country—something else you probably already knew.
According to the Tax Foundation, the state-local tax burden in New York averaged 12.7% of income, the highest rate in the nation. Connecticut and New Jersey had the dubious distinction of coming in second and third place, with state and local taxes gobbling up 12.6% and 12.2% of income, respectively.
The numbers pertain to the 2012 fiscal year, the most recent year for which data is available. The average state-local tax burden is 9.9% nationally, but in these six states, state and local taxes amount to 11% or higher:
12.7% New York
12.2% New Jersey
Maryland, Minnesota, and Rhode Island are right behind, with state and local taxes eating up 10.9%, 10.8%, and 10.8% of income, respectively.
At the other end of the spectrum, the local tax burden in Alaska is only 6.5% of income, the nation’s lowest rate. (The state’s abundant oil money has a lot to do with keeping tax rates low.) South Dakota, Tennessee, Wyoming, Louisiana, Texas, and New Hampshire all have tax burdens at the bottom of the spectrum, with rates under 8%.
How much does this add up to in terms of actual dollars? In Connecticut, for instance, the local tax burden works out to a per capita average of $7,869, based on per-capita income of $48,313. In nearby New Hampshire, by contrast, the tax burden is $3,961 per capita, based on per capita income of $50,288.
How the Tax Foundation came up with its figures is a little confusing. Each state’s tax burden is based on tallying up standard taxes including property taxes, state income taxes, sales tax, and special taxes on things like alcohol, tobacco, and gas. What makes things complicated is when residents of one state wind up paying a significant amount in taxes in another state—for instance, Connecticut residents who work in New York City pay income taxes to both the city and New York state. In such cases, the Tax Foundation counted those taxes as part of the burden for Connecticut residents. Same thing goes for tourists paying big taxes in places like Florida and Nevada—those taxes were added to the burden of the state where the tourists lived, rather than where they forked over the money.
Given what most people think about taxes, what may come as the biggest surprise is that “state-local tax burdens as a share of state incomes decreased on average across the U.S.” for the 2012 fiscal year, according to Tax Foundation researchers. It’s not like tax rates were cut across the country. Instead, what happened is that “average income increased at a faster rate than tax collections, driving down state-local tax burdens on average.”