Where to Live with Less Taxes, then Do You Want to Live There?

CNNMoney.com yesterday has an article which listed top 5 most tax-friendly states and top 5 states with the most heavy tax burdens. According to the article,

For the 17th year in a row, the far Western state earned the distinction of being America’s most tax-friendly state.

Among them, Alaska ranked No. 1 with the lightest state and local taxes burden. However, with taxes along won’t tell the whole story because, even with a low tax rate, if the income is also low, then there isn’t really much to cheer about. So I put the taxes in the context of median household income. Interestingly, Alaska, whose 6.6% state and local income rate is the lowest across the country, also has the seventh highest average median household income from 2003 to 2005, according to the Census Bureau data. New Hampshire’s 8.0% tax ratio puts the state at the second place on the most tax-friendly list and its 3-year average median household income is the third highest (only behind New Jersey and Maryland) in the nation. Roundup the top 5 most tax-friendly states are:

Rank State Tax ratio Median income After tax income
1 Alaska 6.6% $55,935 $52,243
2 New Hampshire 8.0% $58,223 $53,565
3 Tennessee 8.5% $39,524 $36,164
4 Delaware 8.8% $50,970 $46,485
5 Alabama 8.8% $38,180 $34,820

At the other end of the spectrum, paying more can’t always be translated to earning more. Residents of Maine pay 14% of their income to the state and local government as taxes (income taxes, property taxes, sales taxes, luxury taxes, and fuel taxes, you name it), yet the 3-year average household income of the state is only $42,006, ahead of just 15 out of 50 states. Other high-tax states include:

Rank State Tax ratio Median income After tax income
1 Vermont 14.1% $48,508 $41,668
2 Maine 14.0% $42,006 $36,125
3 New York 13.8% $46,242 $39,861
4 Rhode Island 12.7% $48,823 $42,622
5 Ohio 12.4% $44,961 $39,386

If you can choose, what will be your choice? A place with less taxes so you can keep more, or a place with high-paying jobs though you may have to pay lots of taxes?

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6 Responses to “Where to Live with Less Taxes, then Do You Want to Live There?”

  1. Ted |  May 30, 2007 at 11:58 am

    Tennessee’s 6% tax ratio listed above is ONLY for interest and dividend income. There is a $1250 exemption for a single filer, twice that for joint filers. TN also has a very regressive 9%+ sales tax rate, including food + groceries.