What Are the Best and Worst States for Taxes?

What Are the Best and Worst States for Taxes?

Connecticut residents annually pay an average $7,115 in state and local taxes, or 26% more than the national average according to a new report.

The financial site WalletHub ranks the state 47th in the country for its state and local tax burden. Only Rhode Island, Wisconsin, Nebraska, and Illinois ranked below Connecticut.

And, when adjusted for the cost of living, Connecticut fell to last among the 50 states and the District of Columbia.

Alaska, where residents pay an average $2,993 annually (47% less than the national average), has the lowest state and local tax burden in the country. The 10 best states:

1. Alaska, $2,993

2. Delaware, $3,176

3. Montana, $3,639

4. Wyoming, $3,926

5. Nevada, $4,106

6. Tennessee, $4,183

7. Idaho, $4,465

8. South Carolina, $4,531

9. California, $4,664

10. Florida, $4,775

Measuring tax burdens

In ranking state tax burdens, WalletHub measured taxes on income, real estate, vehicles, sales, fuel, food, and alcohol.

Wyoming, Alaska, Nevada, Florida, South Dakota, Washington, and Texas have no state income tax.

Alaska has no vehicle property taxes, has the lowest gas tax, and and has one of the lowest sales taxes.

The states with the worst per capita tax burdens:

1. Illinois, $7,719

2. Nebraska, $7,298

3. Wisconsin, $7,159

4. Rhode Island, $7,158

5. Connecticut, $7,114

6. New York, $7,062

7. Kansas, $6,943

8. Michigan, $6,902

9. Ohio, $6,833

10. Iowa, $6,730

Economic mobility

State and local tax burdens directly impact economic mobility–the ability to move up and down the income ladder–according to Harvard and Berkeley university researchers collaborating on The Equality of Opportunity Project.

They found “a significant correlation between both measures of mobility and local tax rates.”

Taxes play an important role in determining a state’s overall business climate and rate of economic growth.

Fo rinstance, Connecticut, Rhode Island, and New York all rank among the bottom 10 states in CNBC’s America’s Top States for Doing Business 2014.

Four years ago, Connecticut lawmakers passed the largest tax increases in state history.

Our tax system now is the subject of much discussion at the State Capitol as legislators again grapple with a projected multi-billion dollar budget deficit.

Governor Malloy’s  budget proposal for the next two years includes $900 million in revenue increases and $1.3 billion in spending cuts.

Under the Governor’s plan, businesses would provide $496 million of that new revenue.

Reforms needed

It’s clear from the state’s  constant cycle of budget deficits followed by tax increases that the state budget has grown far beyond what taxpayers—and our economy—can afford.

Raising taxes isn’t the solution. But making state government more effective and efficient can be a big part of it.

We need comprehensive reform; Connecticut can no longer continue to conduct business as usual if we are to move up in national economic rankings and remain a great place to live, work, and raise a family.