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BP65 2010 Burdens Report

BP65 2010 Burdens Report

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Published by: jspector on Oct 23, 2012
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BACKGROUND PAPER 
October 2012, Number 65
 Annual State-Local Tax Burden Ranking 
New York Citizens Pay the Most, Alaska the Least 
Introduction
For nearly two decades the Tax Foun-dation has published an estimate o thecombined state and local tax burden shoul-dered by the residents o each o the fty states. For each state, we compute this mea-sure o tax burden by totaling the amount o state and local taxes paid by state residents toboth their own and other governments andthen divide these totals by each state’s total in-come. We not only make this calculation orthe most recent year, but also or earlier yearsdue to the act that income and tax revenuedata are periodically revised by governmentagencies.Our goal here is to move the ocus romthe tax collector to the taxpayer. We aim to
Key Findings
Since 2000, state and local burdens have increased rom 9.3 percent to 9.9 percent.During the 2010 fscal year, however, burdens remained airly stable, only decreasing slightly rom their 2009 levels.In 2010, the residents o New York, New Jersey, and Connecticut paid the highest state-local tax burdens in the nation. These are the only three states where resident taxpayers  orego over 12 percent o income in state and local taxes.Residents o Alaska, who have consistently been the least taxed state or nearly three decades, again paid the lowest percentage o income in 2010 at just 7.0 percent. The next lowest-taxed states were South Dakota, Tennessee, and Louisiana.State-local tax burdens are very close to one another and slight changes in taxes or income can translate to seemingly dramatic shits in rank. For example, the 20 mid-ranked states, ranging rom Oregon (16th) to North Dakota (35th) only dier inburden by just over one percent.While some studies aim to tally the total revenues collected rom state and local  governments, this study moves the ocus rom the tax collector to the taxpayer by ocusing on tax burdens.
By Elizabeth Malm &Gerald Prante, PhDfnd what percentage o state income residentsare paying in state and local taxes and whetherthose taxes are paid to their own state or toothers. We are not attempting to fnd theamount o money state and local governmentshave collected; the Census Bureau publishesthe defnitive comparative data answering thatquestion.Here are some examples o the dierencebetween burdens (ocusing on the taxpayer)and collections (ocusing on the tax collector):When Connecticut residents work in New  York City and pay income tax to both thestate and the city, the Census Bureau willtally those amounts as New York tax collec-tions, but we will count them as part o thetax burden o Connecticut’s residents.
Elizabeth Malm is an Economist at the Tax Foundation and Gerald Prante is a Tax Foundation Adjunct Scholar.
 
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When Illinois and Massachusetts residents ownsecond homes in nearby Wisconsin or Maine,local governments in Wisconsin and Maine willtally those property tax collections, but we willshit those payments back to the states o thetaxpayers.When people all over the country vacation inDisney World or Las Vegas, tax collectors willtally the receipts rom lodging, rental car, res-taurant, and general sales taxes in Florida andNevada, but we will count those payments inthe states where the vacationers live.Every state’s economic activity is dierent, asis every state’s tax code. As a result, each varies intheir ability to “export their tax burden”—that is,to collect revenue rom nonresidents. Economistshave been studying this phenomenon since at leastthe 1960s when Charles McLure (1967) estimatedthat states were extracting between 15 and 35 per-cent o their tax revenue rom nonresidents.Much o this interstate tax collecting occursthrough no special eort by state and local legisla-tors or tax collectors. Tourists spend as they traveland all those transactions are taxed. People whoown property out o state pay property tax out o state. And the burden o business taxes is borneby the employees, shareholders, and customers o those businesses wherever they may live.Many states, however, make a conscious e-ort to levy taxes specifcally on nonresidents, andthat eort seems to be accelerating. In act, many campaigns or tax-raising legislation in the last sev-eral years have explicitly advertised the ability topush the burden o a certain tax onto non-voting,nonresident payers as a reason or resident votersto accept the tax.This beggar-thy-neighbor eort has beenmostly legislative, exemplifed by a wave o tax hikes on tourism: hotel rooms, rental cars, res-taurant meals, and local sales taxes in resort areas.States and localities have also targeted nonresi-dents with higher property taxes and, in rare cases,higher income taxes. The eort to utilize nonresi-dents has also been administrative, as departmentso revenue have pursued nonresident income tax revenues rom individuals and corporations withar more zeal than in years past.In some cases, the tax exporting is a washrom the tax collector’s perspective. That is, a statecollects the same amount rom nonresidents as itsown residents pay to out-o-state governments.But in many cases there is a signifcant dier-ence—some states are able to collect a signifcantportion o revenues rom out-o-state taxpayers.By tallying tax payments in the taxpayers’home states, this report allows policymakers,researchers, the media, and citizens to go beyonda mere measure o collections to the question o  which states’ residents are most burdened by allstate and local taxes.
Ranking State-Local Tax Burdens
The state-local tax burdens o each o thefty states’ residents are quite close to one an-other. This is logical considering state and localgovernments und similar activities such as publiceducation, transportation, prison systems, andhealth programs, oten under the same ederalmandates. Furthermore, tax competition betweenstates can oten make dramatic dierences in thelevel o taxation between similar, nearby statesunsustainable in the long run.Thereore, it is not surprising that slightchanges in taxes or income can translate to seem-ingly dramatic shits in rank. For example, thetwenty mid-ranked states, ranging rom Oregon(16th) to North Dakota (35th), only dier in bur-den by just over one percentage point. However, while burdens are tightly clustered in the center o the distribution, states at the top or bottom canhave substantially higher or lower burdens.
Highest and Lowest Tax Burdensin the Nation
In fscal year 2010,
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the residents o threestates stand above the rest, paying the higheststate-local tax burdens in the country: New York,New Jersey, and Connecticut. These are the only states where taxpayers orego over 12 percento their income in state-local taxes, over a ullpercentage point above the next highest state,Caliornia.New York, New Jersey, and Connecticuthave occupied the top three spots on the list since2005. This may be partially attributed to high lev-els o state expenditure which must be sustainedby high levels o revenue. Further, in the caseo Connecticut and New Jersey, relatively hightax payments to out-o-state governments addto already high in-state payments. This is likely related to the act that these are high income statesthat pay high levels o capital gains. High levelso capital gains will result in residents paying anincreased share o other states’ business taxes.New York residents paid the most at 12.8percent o income. Next on the list are New Jersey and Connecticut, where residents paid 12.4 and
 
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12.3 percent respectively. Rounding out the topten in highest state-local burdens are Caliornia, Wisconsin, Rhode Island, Minnesota, Massachu-setts, Maine, and Pennsylvania. Alaska consistently has the lowest tax burdenin the nation, where state residents paid just 7.0percent in 2010. The next lowest state, South Da-kota, saw residents paying over hal a percentagepoint higher at 7.6 percent o state income. Therest o the bottom ten states are Tennessee, Louisi-ana, Wyoming, Texas, New Hampshire, Alabama,Nevada, and South Carolina, with residents o these states paying between 7.7 and 8.4 percent o income. See Table 1 and Figure 1 or percentagesand rankings or all fty states.The last decade saw a steady growth in aver-age tax burdens, rom 9.3 percent in 2000 to 9.9percent in 2009. Average tax burdens ell a very small amount in 2010 (0.006 percentage points). A majority o state residents’ tax burdens de-creased. The most pronounced drops in burdensbetween 2009 and 2010 occurred in Delaware(decrease o 0.7 percentage points), North Dakota (decrease o 0.5 percentage points), and Louisiana (decrease o 0.5 percentage points). Delaware’srelatively large decrease moved it signifcantly down the rankings list, rom the 17th highest tothe 31st highest burden. North Dakotans also saw a drop in tax burden, rom 30th to 35th.Residents o some states, however, saw increases in their state-local burden. The largestincreases were in Alaska, Colorado, and Hawaii.Resident tax burdens in these states rose by 0.5,0.4, and 0.3 percent, respectively. For Alaska, thisdid not result in any change in ranking. Colora-do’s ranking worsened, rising rom 39th to 32nd.Hawaii’s rank worsened rom 18th to 14th.
Figure 1

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