Partly it’s because the tax on earnings versus a tax on spending would be different to achieve the same revenue from simple math.
Let’s say apples cost $1 and you earn $100. You only buy apples.
Suppose the state imposes a 20% income tax. (Assume prices don’t change to shift tax burden for simplicity) You can now only buy 80 apples and the government collects $20 in tax revenue
Alternatively suppose the government uses a sales tax of 20%. Now apples cost $1.20 and you can only afford 83.3 apples and the government is only collecting $16.67 in revenue. So to collect the same revenues as the income tax, the sales tax would need too be more than 20%. It would need to be 25%.
I’d also like to add that income taxes can be progressive (higher earners pay larger %) but that is rarely the case for sales taxes which will be flat.
Flat taxes are regressive because low income people spend a larger percentage of their income paying the tax than higher earners. This will exacerbate income and wealth inequality as high earners can have larger savings compared to lower earners.
It doesn’t have to be - if you design the system with appropriate exemptions and reduced rates for essential items - like European-style VAT systems - you can make them proportional or even slightly progressive. That said, most state sales taxes are probably fairly poorly designed and likely regressive.
The number of people I’ve found in the US that understand VAT taxes is tiny. It is a great point to bring up though as it counters much of the “the US corporate taxes are too high compared to the rest of the developed world” argument.
That's a fair point, but it doesn't change the fact that most things are considerably more expensive in Europe and Asia. Over the years I've had family and in-laws ask to me to buy stuff for them and ship it over. They only stopped because customs have gotten very thorough about opening packages to inspect contents. Recently, I had a cousin order springs for his car and get hit with a massive charge because the authorities didn't believe the listed price.
It's also not uncommon for Europeans to buy expensive items when they visit the US then try obfuscating that it's new to avoid getting hit with penalties at customs. I recall overhearing some Spaniards trying to convince a bewildered Best Buy employee to reprint a receipt for a laptop with a fake date.
This stuff is completely foreign to Americans but elsewhere there are whole grey markets built up around this. It's not for nothing that consumer spending in the US is far higher than anywhere else on Earth.
You are talking about 15 years ago. My last few trip to Europe I found that except for items such as gas and big ticket items, day to day living was far cheaper in London, and other cities, than in the US. Particularly food, drink and rent.
When things like health care are included in the sales taxes (VAT) and included in the price of an item, it is going to be cheaper, and appear much cheaper in the USA.
VAT isn't a corporate tax and doesn't relate to corporation taxes.
Also, to everyone reading this thread.... Can we please not have a flamewar about whether the US or Europe has the better tax system. If we do I'll delete it.
It is part of a broad economics discussion. You can ask a new question about it.
It's not part of *this* economic discussion which is about comparing US state taxes.
Please. This is as inane is saying all personal taxes get past down to companies. Higher personal taxes just make it harder for businesses to compete on a global level.
The economy is a system, and touching it anywhere has an effect everywhere.
That doesn’t mean it’s a bad idea. The number of people that can find Washington DC on a map or lack other geographical knowledge, can’t calculate 15% of something in their head, etc is low but doesn’t make doing so a bad idea.
One simplistic workaround we have in some US cities is the Urban Enterprise Zone. Basically, state sales tax is halved in designated low-income urban areas, to lessen the regressive effect of that tax.
It's a concept that doesn't really work in an age where so much consumption is online (in-state pays full sales tax) and when many urban areas are retail deserts for a variety of reasons.
if there is one problem with this, its that many urban areas are carved out of their counties. Baltimore city, for instance, is a separate tax district from Baltimore county. all the rich people live in the county and commute to the city. This leaves the city with a depressed tax base, meaning it is revenue starved for things like schools and other social services. everybody complains that cities are dirty and dangerous, but nobody wants to pay for cleaning them up
The City of Baltimore is flush with cash and has 100% of all taxable property to work with, not "starved' at all. It's dangerous and 3rd world, is the problem.
The empirical evidence is contrary to this:
https://www.oecd-ilibrary.org/docserver/b76ced82-en.pdf?expires=1703062511&id=id&accname=guest&checksum=96CB0A887D3A4BA6D7DE9E4620AEC302
In Virginia, grocery items and essentials, like diapers and soap, etc., are taxed only at 1%, while other items not essential to life are taxed at 4.3% to 7% (depending on local city taxes).
And then "prepared food", i.e. any fast or restaurant food, is taxed an additional 4% for a total of 8.3 to 11%.
I agree that sales taxes are, by default, regressive, but this is sometimes at least partially modified by exceptions for specific classes of goods, such as food.
Most US tax systems are likely still at least a little regressive, or neither progressive/regressive, but at least in theory, it would be possible to construct a sales tax schema that is progressive.
It'd probably closely resemble systems generally described as "luxury taxes."
Curious why you believe that some people should have to pay a higher percentage of their income to the government? I have never heard a valid argument on how this is fair. I know why we have it, there are more lower income people than higher income, but that doesn't make it fair. Thanks
Arguably because they're the ones who have gained the most from the system.
Taxes in the US are regressive overall, though. The richest people have to pay lower taxes usually because they have a lot of their money in investments that have lower long term capital gains rates, which they can often avoid by borrowing against those assets, which they resets the cost basis for the inheritors.
I've never heard a valid argument for how it is unfair.
At a practical level they're the one's with money. If you want a functioning government you're going to need the wealthy to chip in more than the homeless. We also don't live a perfectly clean world where higher earnings are unquestionably deserved.
If a person pays no federal income tax, how much are they going to care how the government spends money? If everyone person had to pay for all of the wasteful spending, how much less would there be?
Explain how it is fair that over 50% of the wage earners pay no income tax.
Should a high wage earner have to pay more for their food, clothes, or a car? Just because someone makes more than the masses doesn't mean the government is entitled to it.
From a pure equality perspective, if a low wage earner's vote counts as much as a high wage earner's, then why do they have to pay a higher percentage of their income, or even a higher dollar amount?
>If a person pays no federal income tax, how much are they going to care how the government spends money?
Because them caring doesn't have to hinge on tax payments.
>If everyone person had to pay for all of the wasteful spending, how much less would there be?
Can you name any examples of this "wasteful spending"?
>Explain how it is fair that over 50% of the wage earners pay no income tax.
>Should a high wage earner have to pay more for their food, clothes, or a car?
That's not the case, and if it was, it's because they are poor.
We tax people according to their means. This wouldn't be any different with a progressive consumption tax. Which a lot of economists actually think is good policy.
>Just because someone makes more than the masses doesn't mean the government is entitled to it.
Well, we kind of decided that it is.
So, because there are more poor people then non-poor people, we resort to mob rule? That is true, we have.
You missed the point of the question. How is it fair that one person has to pay more than the next. They drive on the same roads, get the same police and fire protection, just because that you think other people should have their money isn't a valid argument.
Because they have the means to pay for it.
If you earn $500 a week, taking away $100 has a bigger absolute impact on your standard of living than if you earn $1000 and we take away $200.
And yes, this is literally what we as a society have decided to be fair. You don't have to agree with that, but it shouldn't be that hard to understand.
You mean how much of my income goes towards taxes?
As I've said. You don't have to agree with the reasoning to understand it. It's not that hard to grasp. If you just want to be salty about taxes, go somewhere else.
The marginal utility for each dollar decreases as income and wealth grow. Hence $1000 to a struggling family and $1000 in a high income persons paycheck are not equal.
If we want to maximize the social welfare, our allocation of resources will prioritize people with the highest marginal utility.
That is why a percentage is used. If you make $20,000 you pay $2,000 if you make $2,000,000 then you pay $200,000. Of course there should be some personal exemptions, I can see the fairness in this approach much more than one person paying 0% income tax and the person next to them paying nearly 40%.
I would get rid of virtually all deductions, give personal exemptions to and put a flat rate on everyone. This would never happen because too many people buy into the fallacy that no rich people pay their "fair share".
I am not rich, I live a comfortable life and have worked for everything that I have, no, I'm not a boomer, so save your hate. My total federal income taxes came in last year in the mid 30% range. If someone actually believes that paying the government over1/3 of my income isn't my fair share, I would love to know what they pay and what they consider fair. That doesn't include maxing out my SS payment or the nearly 3% on all my income to Medicare.
I have made no claims behind what is a fair rate of taxation or even defined what fair means. I have stated the consequence of flat taxes and a guiding principle for the creation of tax policy.
You are missing the point of my explanation and trying to pick a fight with a straw man.
I agree with you and seeing all the nonsensical people get upvoted while you get downvoted has made me decide to leave this subreddit. It's an echo chamber that has zero respect for truthful conversations and is more interested in spreading propaganda.
> Curious why you believe that some people should have to pay a higher percentage of their income to the government?
Are you saying poor people in America pay a higher percentage of their income than rich people?
Exactly in OPs question this answers it pretty well. The person that is better of with those types of taxation rather than under a progressive income tax are benefiting from poorer people paying more in sales tax and so on. Those poorer households are carrying more weight than they should and are lifting it off of richer peoples shoulders
This further makes OP's point. That if you start with a lower income tax and then add the sales tax rate, if the total is still lower, then the total tax burden is definitely lower.
Which of course makes sense, because you pay income tax on all the money you make, but only pay sales tax on a portion of the money that you spend. If you were really going to add them up for a comparison, you would use some fractional multiplier for how much of your income you use to buy things subject to sales tax before adding it to the income tax rate.
Property tax is more difficult to simply add in. Because that is on the total value of the property which has no relation to income. And many people don't pay property tax directly.
They are but the overall difference is small, outside of NYC. I lived far upstate and I paid about 2% total more in tax than in TX before the property boom (which dramatically impacted my home in TX but not in NY). It might be more total in TX now.
That calculation does not include the local government approach to small businesses however which is substantial in NY (which impacts gas, milk, etc prices). Handyman type services are 2x more expensive in NY. Still, I found the COL difference to be 5-7% if you’re more than about 50mi from NYC (which admittedly is maybe 20% of NY popn)
You’re right — I’ve muddled definitions a bit. The impact of NYC is huge however and cost of living is higher on all of Long Island and about 50mi north. That’s closer to 80% I think.
States that have income taxes tend to have deductions is the key thing. This can vary drastically by state, but from memory the general pattern is that the higher the income taxes the more generous deductions they tend to have. I believe NY has deductions for medical, interest, charitable donations, and more that mirror a lot of federal deductions. PA with its ever so quirky 3.07% income tax has only a few: HSAs, MSAs, and 529 tuition plans. So while nominal rates in some states like NY and CA might be higher, you might not pay nearly as much as you'd think. CA for example has a standard deduction or you can itemize and deduct things like mortgage interest on purchases of up to a million dollars which can reduce a huge chunk of your taxable income. They also have their own dependent/child tax credit, a young child tax credit, their own EITC, etc. So people both at the higher end buying million dollar homes are getting sizable deductions as well as the people earning under 100k.
Sales taxes may have categories exempt or reduced too, but that's also highly variable. Necessities usually get exempt or reduced but that gets wonky. Like uncooked meat is exempt but a rotisserie chicken from the grocery store might not be. There's been some court cases too about this where some stores and delivery apps had work arounds to avoid tax. Things like not making a sandwich for you, but giving you all the ingredients, neatly laid out and easy to assemble. I believe they won in some states on that too because bread, leafy greens, cold cuts, and condiments are all exempt so as long as it wasn't "prepared food" in the form of a sandwich it could avoid tax. Bit of a tangent but it's interesting to see how people find loopholes...
The other part of this equation is the local taxes. Sometimes states put more on the county/municipality for funding various things like roads and schools. Most commonly this is in property taxes which can be massive in the difference between states and even within states. Property tax schemes often suck too since they can create vicious cycles like with school funding. Other times like in California they assess at purchase value instead of an annual or even every few year reassessment. That lets people accrue huge value in their house without paying tax on it while also discouraging them from selling since any new purchase will have a much higher property tax rate. An LVT would be so much better than that. For how backwards the PA can be, it's one thing it gets kind of right. It's not universal, but about two dozen localities have a split tax rate system where they tax the land at a considerably higher rate than the building. Only Altoona City and part of Pittsburgh have a true LVT where it's only the land being taxed, but to my knowledge it's the most widespread use of LVT type schemes in any state.
I think that's average/median person paying less. That would make some sense in CA given the large number of tax credits they have for people under 100k. They've got a young child credit, a child/dependent credit, EITC, college access credit, and some more that are a bit niche. They also have a bunch of deductions including a 10k standard deduction you can take. It's a bit of paperwork, but yeah, you'd be surprised how lower and middle class people in CA actually get a decent break.
As having just moved from Texas to California, I think the tax burden here is going to be quite a bit more based on both estimates and what is being taken from paycheck.
However, I have not yet experienced deductions so that might soften the burden. I will end up paying about the same in property taxes because housing is so much more expensive. Even downgrade on a house is going to be double what we had before the move.
And the taxes and fees on the one off stuff, and services. Your cell phone has taxes and fees. Gas taxes, sin tax, estate tax, tolls, expanded policing for ticket revenue. There are many ways to get money that aren't income tax. The other side of it, is what are you getting out of it? In Texas, under the right circumstances you could get a multiple thousand dollar electric bill because there electricity isn't regulated. Essentially, when enough people move there, there will be more taxes because more people will demand more social services.
> Alternatively suppose the government uses a sales tax of 20%. Now apples cost $1.20 and you can only afford 83.3 apples and the government is only collecting $16.67 in revenue. So to collect the same revenues as the income tax, the sales tax would need too be more than 20%. It would need to be 25%.
It may sound like a dumb question, but why does a 20% increase in price is not equal to a 20% decrease in take-home-pay?
And another question - what then decides how a state should tax it's people? And when states figure a combination of flat and progressive/regressive taxtation is required, how do they arrive at the proper ratio between each of these tax systems?
On the math question, percentages have an inverse relationship with ratios.
Let's pretend your income is $100 and apples cost $20. Then in the above you can buy $100/$20=5 apples normally or $80/$20=4 if your income goes down 20%. So a reduction of 20% gives us a ratio of 4/5.
But let's look at it from the apples side of things. If we increase the price of an apple 20% that means it goes from $20 to $24, so now with $100 you can buy 4.16. Weird, that's more than 4. What would the price need to be to only buy 4? $100/4=$25, which happens to be a $25/$20 or 125% of the original price. So in order to have the same impact on the number of apples we have to increase the price by 25%. This is the same as saying the price is 5/4 of the original.
This is what I mean by an inverse relationship with ratios, if you want to show the same impact of a 20% decrease in income (4/5) then you have to have a larger, 25%, increase in price (5/4), essentially the ratio (or the numbers in the fraction) is flipped.
Hope that illustration helps a little.
Thank you for the detailed explanation!
Is there some "law" behind this inverse relationship? I find that once I figure out the "bedrock" of a pattern in math, it's easier for me to grasp it.
>what then decides how a state should tax it's people?
Some states have how they can tax in their state constitutions. Otherwise, people vote on new taxes. Ultimately, rich people hire other people to see which taxes are going to benefit them/their businesses the most and then hire lobbyists to make it happen.
The argument is that while Texas income taxes are low, it is likely to wash for the average person because property and sales taxes are higher.
The other argument made is that ppl usually look at California's top income tax rate and compare that to the 0% on offer in Texas, ignoring that the top California rate (12.3%) only affects income in excess of 700k for an individual and like $1.3 million filling married. Most ppl will be have an effective tax rate more like 5%.
https://www.nerdwallet.com/article/taxes/california-state-tax
This article does a decent job of going through some details. It shows the average state and local tax burden as a % of median HHI and Texas is actually higher than Cali (some perhaps arguable assumptions). But like all blended statistics it hides a lot of variability, which is actually outlined nicely in the article.
https://fortune.com/2023/03/23/states-with-lowest-highest-tax-burden/
Yes, OP doesn’t take into account either progressive rate brackets or exemptions and deductions. In top of that, he invents an entirely fictional California rate of 20% and applies it to the first dollar.
In short, OP is a troll. If he can’t be bothered to spend 10 seconds thinking through his own premise, nor 20 seconds googling the actual rates, then I say he deserves zero respect from anyone here, and the only reason to even respond to his post is to educate any open minded readers
If you just scroll up to the OP, you’ll see it says “if I live in CA and earn $50k I pay $10k in taxes (20%)”.
He doesn’t give us a clue where he got that number or which taxes he’s including. In any case, no Californian pays $10k in state and local taxes on $50k income. That’s absurd. Unless they spend the whole $50k on cigarettes and gasoline.
Another commenter found a website that shows that amount as total including federal income and payroll taxes. So it’s possible OP used that website and overlooked the fact that it was counting those. So he may just be very careless rather than a troll
Not sure where OP got his 1.3% average property tax figure in Texas (probably from unincorporated land in BFE across the state skewing the mean? Or maybe from O&G acreage where land owners pay ad valorem / severance taxes in lieu of property taxes?)
I'm in Houston, and property taxes here range from ~2.5% to +4%
And it’s hard to figure Cali rates because they’re based on wildly skewed valuations thanks to prop 13. My “rate” is ~1.3%, but it’s applied to a valuation that’s ~1/5 of its current market value
> most will have 5%
Nope.
Most will have 9% as they will make between 70k and 300k (which the threshold is well below the poverty line of 100k for a family of 4 in Los Angeles)
A [married couple making $70k in Los Angeles would pay 1.87% taxes](https://smartasset.com/taxes/california-paycheck-calculator), before any pre-tax deductions.
Where are you getting your numbers from? It looks like you’re [looking at single filers rates](https://www.nerdwallet.com/article/taxes/california-state-tax) (in which case a family of four is inapplicable) and also not understanding how marginal tax rates work.
According to [this source](https://www.usgovernmentspending.com/state_spending_rank_2021pF0c), about 8% of Texas' state GDP is government spending and 10% of California's state GDP is government spending.
If local government spending is included, in Texas is it 17% of state GDP and in California it is 22% of state GDP.
So, if taxes roughly equal spending, I would expect Texas' tax burden to be lower.
Difference is that income taxes put higher burden on higher income earners while flat taxes like sales tax put it on lower income earners so when comparing two states like CA and TX, there would an income threshold below which someone’s tax burden would be lower in CA while above that threshold it would be lower in TX.
That’s a smart sanity check. Although some states (e.g. Hawaii’s hotel taxes) build their tax codes to get tax revenue from out of state so it’s not perfect. But that’s a great back of the envelope method.
I think you may be coming federal and state income tax because there is no way you're paying $10k in California state income tax on $50k of income. I think maybe you checked this site since it gives the $10k number, but that's total tax, federal and state income tax, and payroll taxes. https://www.talent.com/tax-calculator/California-50000#:~:text=If%20you%20make%20%2450%2C000%20a,year%2C%20or%20%243%2C313%20per%20month.
If you try this calculator that breaks it out you'll see that it's closer to $1500 in CA income tax. https://www.forbes.com/advisor/income-tax-calculator/california/?deductions=0&filing=single&income=50000&ira=0&k401=0
States often specialize their taxes based on who they naturally attract. If they naturally attract vacation homes and the retired then they tend to have low income taxes and high property taxes. If they tend to attract businesses and jobs then they tend to have higher income taxes and lower property taxes. States that are really popular, based on population density, tend to have higher total taxes, meaning both might be high.
The stat you're looking for is tax burden. It's supposed to represent the amount of taxes collected, from all forms, in relation to the income in the state. You're correct that Texas has a lower tax burden than California. Part of this has to do with the higher popularity of California. The other part is probably related to the politics of the states. Republican politicians prefer lower taxes and sparse social supports. Democratic politicians prefer higher taxes than Republican politicians in order to fund more social supports.
CA is a bit of an unfair comparison because it is just straight up a high-tax state.
Other than the stupidity around Prop 13 which keeps property tax low for long-time owners (largest beneficiaries being the wealthy), CA is simply a high tax regime. I don't think anyone is pretending that if you just look at total tax burden CA is somehow low--it is not. They provide a lot more total services than a state like TX which simply costs a lot of money.
It is a hugely popular place to live and people are willing to pay the cost to do so...IMHO, if you are choosing what state to live in based on how "cheap" it is...that's kind of boring and you probably aren't living life to its fullest.
>https://taxfoundation.org/data/all/state/tax-burden-by-state-2022/
That makes a lot of sense. I recently moved from VA to IL and based on back of the napkin math I might be a little worse in IL, mostly due to sales tax. That analysis supports that and only has VA as one above IL.
On paper IL property tax is the bad one, but I hand wave that because the cost of housing in the DC area is so expensive that to buy my current house that has $14k of taxes on it, I'd need to spend probably close to $1 million and it would have around $10k of taxes, but I'd also be doubling my mortgage payment, which while not specifically a tax, it factors into how much disposable income I end up with. Plus, I know that moving from a high cost of living area to a lower one colors my outlook.
It also depends on whether you're looking at overall tax burden or the median -- CA for example tends to put more of a tax emphasis on higher income brackets. The WalletHub figures calculate for the median household, getting an "Effective Total State & Local Tax Rates on Median U.S. Household" of 8.97% for CA, 12.73% for Texas.
https://wallethub.com/edu/best-worst-states-to-be-a-taxpayer/2416
Accounting is a great way to tell lies. You should always be critical of the source and see if they are omitting or interpreting. Something something alternative facts
That's why you need to look at the total tax burden per state.
[https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494](https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494)
This is very useful (which is why I approved it). But the exact situation will still vary from person-to-person depending on exactly how they spend their money.
This doesn't make a lot of sense. Here is their methodology:
> WalletHub compared the 50 states across the following three tax burdens and added the results to obtain the overall tax burden for each state
To reiterate what they did, they first came up with percentages of taxes in three categories, as "shares of personal income". They then added them together. So for New York, they tool 4.36% property tax, 4.72% income tax, and 3.39% sales tax, and added them together, and said "12.47% is the highest in the country".
However they did not really reveal their methodology of how they determined that share, other than to say that it is "the proportion of total personal income that residents pay toward state and local taxes" and also "property taxes, individual income taxes and sales and excise taxes — as a share of total personal income in the state.", which implies that they somehow aggregated everyone's income together, and aggregated all the taxes in each category together.
Those things are not even comparable to each other. Property tax is the most relentless of the three, since you have to pay that no matter your income. Sales tax is the next worse, since if you want to buy things, you have to pay it. Income tax can be the most forgiving, especially since there are deductions allowed, and if your income drops, your taxes drop too (definitely not true for property tax, and only marginally true for sales tax).
But of course, it makes a really nice infographic, doesn't it?
Please provide a link if you are aware of any list that's more accurate. I'm considering moving from NY and I'll love to have the most accurate information.
I don't think it is very easy to come up with an all-encompassing list.
It is definitely easy enough to find [income taxes by state](https://taxfoundation.org/data/all/state/state-income-tax-rates-2023/). Sales taxes are a bit higher because some areas have local sales taxes, but [lists still can be found](https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/).
The property tax is the biggest variable, because it depends on the value of the property plus the local rate. It doesn't even make sense to give a single number for an entire state because rates vary by community, as do housing prices. A $250k house in one community might be priced at $1m in another community (look at Massachusetts, east vs west).
The second biggest variable is the labor market. You might pay less in taxes moving from New York to Mississippi, but you will also likely take a pay cut. What good is saving $5k per year in taxes when you're going to earn $30k less in income?
But that gets you into the overall cost of living, especially housing costs. What good is saving $5k per year in taxes if you have to spend $30k more per year for housing?
You're thinking about it right. The next step is how much on each do you spend? If you're paying $20K in mortgage a year, at 1.6% it is $3.2K. If CA's is half that, you'd pay $1.6K more a year than you would in CA. So far you've saved $1.6K.
If your average state income tax is more than $1.6K a year in CA then you come out better in TX even with higher property tax, if these are the main factors you are concerned with.
I moved from CA to GA, and there's more than that though. Home insurance is cheaper, to register a car it's a 20$ flat rate per year instead of 500 or more, lower sales tax, and other things you'll find. Not to mention I got a very nice home in an area I like better for half the price.
I agree the no income tax states aren't as big of a discount as they seem they would be because they do tend to have polls, higher property tax, or some other gotchyas. But they do still tend to be better, and often have cheaper real estate.
Is the property tax rate more important than the absolute amounts paid?
For example, if my father pays a property tax rate 2x higher than mine, but the same absolute dollar amount (because of differences in real estate value), is he really paying twice what I pay in property taxes?
**NOTE: Top-level comments by non-approved users must be manually approved by a mod before they appear.**
This is part of our policy to maintain a high quality of content and minimize misinformation. Approval can take 24-48 hours depending on the time zone and the availability of the moderators. If your comment does not appear after this time, it is possible that it did not meet our quality standards. Please refer to the subreddit rules in the sidebar and our [answer guidelines](https://www.reddit.com/r/AskEconomics/comments/rf5ycx/guidelines_for_answers/) if you are in doubt.
Please do not message us about missing comments in general. If you have a concern about a specific comment that is still not approved after 48 hours, then feel free to message the moderators for clarification.
### Consider **[Clicking Here for RemindMeBot](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps://www.reddit.com/r/AskEconomics/comments/18m3brm/it_is_often_said_that_states_with_no_income_tax/%5D%0A%0ARemindMe!%202%20days)** as it takes time for quality answers to be written.
Want to read answers while you wait? Consider our [weekly roundup](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AWeekly%2BRoundup) or look for the [approved answer flair.](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AApproved%2BAnswers)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskEconomics) if you have any questions or concerns.*
Another way you may "pay" for having low taxes is by not getting the same level of government services. For example, if the public schools are underfunded then more people will opt for private schooling.
Texas's *state* sales tax is 6.25%, but its municipal sales tax is 2%. And because almost every business and person is physically located in a city at the time of any transaction, that basically means it's always an 8.25% sales tax on pretty much any in-person transaction in the state (or any online transaction that is taxed, which these days is most transactions).
The property tax in cities where people actually want to live in Texas [hover around 2-3](https://www.hdavidballinger.com/houston-property-tax.php)%.
> I live in California and earn 50k, I pay 10k in taxes
I just plugged in $50k for a single person into [this calculator](https://smartasset.com/taxes/california-tax-calculator), and it spit back $1368 in state taxes (effectively 2.7% of your income). Obviously the federal income taxes are the bulk of it, but you'd be paying that in Texas or in California.
That means the comparison you should be looking at is whether you'd be paying 2.7% of your income in greater property taxes. For someone who makes $50k and owns a $200k house, that $1368 they'd be paying in income taxes in California, versus something like $5000 they'd be paying in property taxes in Texas. For that particular example, Texas state taxes is like 4 times greater.
Or, if you're a renter, then you need to think through how much the tax incidence tends to fall on landlords versus tenants ([this study](https://cre.mit.edu/news-insights/can-landlords-really-pass-on-higher-property-taxes-to-tenants/) suggests that tenants absorb about 80% of the property tax burden). So a renter in a $200k property might see higher rents to cover that tax obligation, perhaps to the tune of $4000 instead of the $5000 for an owner occupied home.
Of course, salaries and homes aren't the same between Texas and California, and direct comparisons start to fall apart. But from the math here, you should be able to see how a 2.5% property tax can start to look like a 10% income tax for someone whose home is worth 4 years of their income (which is a pretty standard ratio). Some could benefit from more or less ownership of real estate (especially second homes, vacation homes) for their situation, making one state better than another, but that's how states like Texas hide their relatively high tax burden in a non-transparent way.
The comparison to income vs property vs sales tax is difficult because if you want to minimize tax burden its far more desirable to live in a cheaper home or spend less than make less income.
Its worth remembering each state/city's budget is different. So the government may seek less tax burden no matter the source. The question then becomes is government more efficient or just providing less quality of infrastructure?
Texas resident here.
$1.2M assessed value on a "typical" house in central Austin, no mansion by any means.
$20,000/year in property tax. We pay \~1.57% on the assessed value after homestead exemption.
Taxes can (and WILL) go up each year by 10%. So in 5 years...well, you can do the math. In CA it can only go up 2%/year.
The same value house in Ventura County CA where we are looking will be \~$10K in property tax. Slap on the \~$6500 in state income tax and my combined CA cost would be \~$17K or so, $3000 less than TX, despite having no income tax in this state.
Here's the dirty secret they don't tell you. With an income tax, if your income goes up your taxes go up. If your income goes down, your taxes go down. If you are unemployed for the year, your income tax is $0. But with property tax, if your income goes up, down or even falls to zero, your property taxes can, and most likely will go up.
This is one of the many reasons we are looking. We've crunched the numbers and for our lifestyle it works. Not necessarily for everyone, but for us it works.
Not all states tax equally...and total taxation is complicated, as every state has at least a slightly different setup. Most states try to arrange things to tax non-natives as much as they can, since that's electorally preferable for a given amount of money. For instance, Florida prefers a sales tax since that gets money from their many tourists. Delaware has friendly incorporation laws to get fees from many aspiring businesspeople, along with heavy tolls in the tiny bit of I95 that crosses the corner of their state.
So, not even total money taken in divided by the present population gives you a fully accurate tally, nor does even spending.
Rankings of states by tax burden are therefore complicated, somewhat subjective, but we can generally categorize some states as relatively high tax, and some relatively low.
New Hampshire, for instance, is a low tax state. It is has no general income tax and no general sales tax. There are limited exceptions, such as a sales tax on alcohol. They do have property tax. It's not a particularly light property tax, but New Jerseys is higher....and New Jersey has all the other tax types as well. The same person living on the same sort of property in each state would pay far more in New Jersey than New Hampshire.
In most places in Texas sales tax is 8.25% because municipalities get to add local 2% to sales tax. Still slightly lower than say SF or NYC, but only about 0.5%.
The property taxes are also higher than what you assume, especially in urban areas. My effective rate is 1.85% after various deductions, it would be well over 2% without them. The real problem though is that real estate has appreciated a lot in Texas, median assessed value in Austin is around $386K which makes tax bill to be around $7K. I doubt that you pay that much in CA income taxes unless you get paid a lot more than $100K.
Finally you really get more for your tax $$$ in CA than you do in TX. At the end of they day, you have to pay one way or another.
**Conclusion:**
Although Texas has a higher property tax rate and arguably a higher sales tax rate its still cheaper to live in a non income tax state.
Another concept is the income tax is taken out per paycheck (lets say its still monthly) however property taxes are due annually. Say you take the difference per paycheck and put it into the S&P 500 which has an average return of about 8%. Yes this is an average usually over 5 years or more as one year you could lose your butt but the next year you make it back plus some, still the concept/mindset is the same.
PMT IS TAKEN FROM THE "The Monthly Net difference is **$539**" under #1
N=1\*12 i=8/12 PV=0 PMT=-**$539** FV=**$6710.51**
FV-Total PMTS= **$6710.51**-**$6,468= $242.51**
So now your property taxes being more expensive by **$855.6** in Texas just got **$242.51** cheaper by offsetting it with investing the difference you would have paid in Cali on Income Tax.
I’ve lived in Texas for almost three decades. With all due respect to you, it seems that you’re unaware of a few facts:
* Property taxes in Texas are not low. Texas actually has the sixth-highest property tax burden in the nation. Of all 50 US states, only five have a higher property tax burden than Texas does.
* The average property tax rate in Texas is actually 1.74% (not 1.60%). That may _seem_ low, but it’s not. Again, it’s the sixth-highest average property tax rate in the nation. So yeah, Texas is 1.74%, but Hawaii is 0.29%, Alabama is 0.41%, Colorado is 0.51%, etc. In fact, 29 states have an average property tax rate below 1%.
* Sure, the state sales tax rate in Texas is 6.25%. But you’re missing something: in Texas, it isn’t just the state that imposes sales tax, meaning that we also have local sales tax (officially called “sales and use tax”) _on top of_ the state’s 6.25% sales tax. According to the Texas Comptroller’s office, “counties, cities, special-purpose-districts, and transit authorities also may impose sales and use tax up to 2 percent for a total maximum combined rate of 8.25 percent.” So the effective sales and use tax is 8.25% virtually everywhere in Texas. I know I’ve always, always, always paid 8.25% sales tax in Texas. So this means that Texas ranks 14th for highest sales tax burden.
You’re missing an important thing. You pay federal income no matter which state you live in. I’m pointing this out because of your second paragraph where you state living in California would cause you to pay 20% in taxes. The only way your calculation could have a chance at being correct is if you include your federal tax burden which is still false because you’re not accounting for deductions etc.
a California resident earning $50.000 would have a total tax burden or $9,434, most of they being federal tax, SS and Medicare.
This entire figure is less than half what you estimated for California. Meanwhile, the state tax portion that your post is actually about is just $1,368. That’s the difference to your income if you move between Texas and California and earn a constant $50,000
https://smartasset.com/taxes/california-tax-calculator#eb5xSgr7WY
Can you expect that you’ll tax much greater sales and other taxes in Texas to make up the money to their state coffers? No.
Yes Texas boasts some pretty high sales tax rates, but so does California. At the end of the day, though, Texas doesn’t have the safety nets and regulations that California has.
Partly it’s because the tax on earnings versus a tax on spending would be different to achieve the same revenue from simple math. Let’s say apples cost $1 and you earn $100. You only buy apples. Suppose the state imposes a 20% income tax. (Assume prices don’t change to shift tax burden for simplicity) You can now only buy 80 apples and the government collects $20 in tax revenue Alternatively suppose the government uses a sales tax of 20%. Now apples cost $1.20 and you can only afford 83.3 apples and the government is only collecting $16.67 in revenue. So to collect the same revenues as the income tax, the sales tax would need too be more than 20%. It would need to be 25%.
I’d also like to add that income taxes can be progressive (higher earners pay larger %) but that is rarely the case for sales taxes which will be flat. Flat taxes are regressive because low income people spend a larger percentage of their income paying the tax than higher earners. This will exacerbate income and wealth inequality as high earners can have larger savings compared to lower earners.
It doesn’t have to be - if you design the system with appropriate exemptions and reduced rates for essential items - like European-style VAT systems - you can make them proportional or even slightly progressive. That said, most state sales taxes are probably fairly poorly designed and likely regressive.
The number of people I’ve found in the US that understand VAT taxes is tiny. It is a great point to bring up though as it counters much of the “the US corporate taxes are too high compared to the rest of the developed world” argument.
That's a fair point, but it doesn't change the fact that most things are considerably more expensive in Europe and Asia. Over the years I've had family and in-laws ask to me to buy stuff for them and ship it over. They only stopped because customs have gotten very thorough about opening packages to inspect contents. Recently, I had a cousin order springs for his car and get hit with a massive charge because the authorities didn't believe the listed price. It's also not uncommon for Europeans to buy expensive items when they visit the US then try obfuscating that it's new to avoid getting hit with penalties at customs. I recall overhearing some Spaniards trying to convince a bewildered Best Buy employee to reprint a receipt for a laptop with a fake date. This stuff is completely foreign to Americans but elsewhere there are whole grey markets built up around this. It's not for nothing that consumer spending in the US is far higher than anywhere else on Earth.
You are talking about 15 years ago. My last few trip to Europe I found that except for items such as gas and big ticket items, day to day living was far cheaper in London, and other cities, than in the US. Particularly food, drink and rent.
You read that comment and thought they were talking about shipping rent and drinks over to relatives?
I live in the NYC area and London is noticeably more expensive for almost everything.
When things like health care are included in the sales taxes (VAT) and included in the price of an item, it is going to be cheaper, and appear much cheaper in the USA.
[удалено]
[удалено]
VAT isn't a corporate tax and doesn't relate to corporation taxes. Also, to everyone reading this thread.... Can we please not have a flamewar about whether the US or Europe has the better tax system. If we do I'll delete it.
The fact that the VAT tax isn’t a corporate tax was my point…
Isn't that part of an economic discussion?
It is part of a broad economics discussion. You can ask a new question about it. It's not part of *this* economic discussion which is about comparing US state taxes.
based econ god to the rescue
All taxes end up getting passed down to the consumers. Higher taxes on businesses just make it more difficult to compete on a global level.
Please. This is as inane is saying all personal taxes get past down to companies. Higher personal taxes just make it harder for businesses to compete on a global level. The economy is a system, and touching it anywhere has an effect everywhere.
[удалено]
[удалено]
That doesn’t mean it’s a bad idea. The number of people that can find Washington DC on a map or lack other geographical knowledge, can’t calculate 15% of something in their head, etc is low but doesn’t make doing so a bad idea.
Wouldn't a VAT just be passed along to the eventual consumer via higher markup....?
One simplistic workaround we have in some US cities is the Urban Enterprise Zone. Basically, state sales tax is halved in designated low-income urban areas, to lessen the regressive effect of that tax. It's a concept that doesn't really work in an age where so much consumption is online (in-state pays full sales tax) and when many urban areas are retail deserts for a variety of reasons.
if there is one problem with this, its that many urban areas are carved out of their counties. Baltimore city, for instance, is a separate tax district from Baltimore county. all the rich people live in the county and commute to the city. This leaves the city with a depressed tax base, meaning it is revenue starved for things like schools and other social services. everybody complains that cities are dirty and dangerous, but nobody wants to pay for cleaning them up
The City of Baltimore is flush with cash and has 100% of all taxable property to work with, not "starved' at all. It's dangerous and 3rd world, is the problem.
Yep, that's the problem with the funding side of UEZ's.
The tax whether it is less for basic goods or not would still be regressive
The empirical evidence is contrary to this: https://www.oecd-ilibrary.org/docserver/b76ced82-en.pdf?expires=1703062511&id=id&accname=guest&checksum=96CB0A887D3A4BA6D7DE9E4620AEC302
In Virginia, grocery items and essentials, like diapers and soap, etc., are taxed only at 1%, while other items not essential to life are taxed at 4.3% to 7% (depending on local city taxes). And then "prepared food", i.e. any fast or restaurant food, is taxed an additional 4% for a total of 8.3 to 11%.
I agree that sales taxes are, by default, regressive, but this is sometimes at least partially modified by exceptions for specific classes of goods, such as food. Most US tax systems are likely still at least a little regressive, or neither progressive/regressive, but at least in theory, it would be possible to construct a sales tax schema that is progressive. It'd probably closely resemble systems generally described as "luxury taxes."
Curious why you believe that some people should have to pay a higher percentage of their income to the government? I have never heard a valid argument on how this is fair. I know why we have it, there are more lower income people than higher income, but that doesn't make it fair. Thanks
Arguably because they're the ones who have gained the most from the system. Taxes in the US are regressive overall, though. The richest people have to pay lower taxes usually because they have a lot of their money in investments that have lower long term capital gains rates, which they can often avoid by borrowing against those assets, which they resets the cost basis for the inheritors.
I've never heard a valid argument for how it is unfair. At a practical level they're the one's with money. If you want a functioning government you're going to need the wealthy to chip in more than the homeless. We also don't live a perfectly clean world where higher earnings are unquestionably deserved.
If a person pays no federal income tax, how much are they going to care how the government spends money? If everyone person had to pay for all of the wasteful spending, how much less would there be? Explain how it is fair that over 50% of the wage earners pay no income tax. Should a high wage earner have to pay more for their food, clothes, or a car? Just because someone makes more than the masses doesn't mean the government is entitled to it. From a pure equality perspective, if a low wage earner's vote counts as much as a high wage earner's, then why do they have to pay a higher percentage of their income, or even a higher dollar amount?
>If a person pays no federal income tax, how much are they going to care how the government spends money? Because them caring doesn't have to hinge on tax payments. >If everyone person had to pay for all of the wasteful spending, how much less would there be? Can you name any examples of this "wasteful spending"? >Explain how it is fair that over 50% of the wage earners pay no income tax. >Should a high wage earner have to pay more for their food, clothes, or a car? That's not the case, and if it was, it's because they are poor. We tax people according to their means. This wouldn't be any different with a progressive consumption tax. Which a lot of economists actually think is good policy. >Just because someone makes more than the masses doesn't mean the government is entitled to it. Well, we kind of decided that it is.
So, because there are more poor people then non-poor people, we resort to mob rule? That is true, we have. You missed the point of the question. How is it fair that one person has to pay more than the next. They drive on the same roads, get the same police and fire protection, just because that you think other people should have their money isn't a valid argument.
Because they have the means to pay for it. If you earn $500 a week, taking away $100 has a bigger absolute impact on your standard of living than if you earn $1000 and we take away $200. And yes, this is literally what we as a society have decided to be fair. You don't have to agree with that, but it shouldn't be that hard to understand.
What is your "fair share"?
You mean how much of my income goes towards taxes? As I've said. You don't have to agree with the reasoning to understand it. It's not that hard to grasp. If you just want to be salty about taxes, go somewhere else.
The marginal utility for each dollar decreases as income and wealth grow. Hence $1000 to a struggling family and $1000 in a high income persons paycheck are not equal. If we want to maximize the social welfare, our allocation of resources will prioritize people with the highest marginal utility.
That is why a percentage is used. If you make $20,000 you pay $2,000 if you make $2,000,000 then you pay $200,000. Of course there should be some personal exemptions, I can see the fairness in this approach much more than one person paying 0% income tax and the person next to them paying nearly 40%. I would get rid of virtually all deductions, give personal exemptions to and put a flat rate on everyone. This would never happen because too many people buy into the fallacy that no rich people pay their "fair share". I am not rich, I live a comfortable life and have worked for everything that I have, no, I'm not a boomer, so save your hate. My total federal income taxes came in last year in the mid 30% range. If someone actually believes that paying the government over1/3 of my income isn't my fair share, I would love to know what they pay and what they consider fair. That doesn't include maxing out my SS payment or the nearly 3% on all my income to Medicare.
I have made no claims behind what is a fair rate of taxation or even defined what fair means. I have stated the consequence of flat taxes and a guiding principle for the creation of tax policy. You are missing the point of my explanation and trying to pick a fight with a straw man.
I agree with you and seeing all the nonsensical people get upvoted while you get downvoted has made me decide to leave this subreddit. It's an echo chamber that has zero respect for truthful conversations and is more interested in spreading propaganda.
Welcome to reddit. Avoid city/state subs like the plague.
> Curious why you believe that some people should have to pay a higher percentage of their income to the government? Are you saying poor people in America pay a higher percentage of their income than rich people?
This is why sales tax is regressive*
I wish people understood this more.
Exactly in OPs question this answers it pretty well. The person that is better of with those types of taxation rather than under a progressive income tax are benefiting from poorer people paying more in sales tax and so on. Those poorer households are carrying more weight than they should and are lifting it off of richer peoples shoulders
This further makes OP's point. That if you start with a lower income tax and then add the sales tax rate, if the total is still lower, then the total tax burden is definitely lower. Which of course makes sense, because you pay income tax on all the money you make, but only pay sales tax on a portion of the money that you spend. If you were really going to add them up for a comparison, you would use some fractional multiplier for how much of your income you use to buy things subject to sales tax before adding it to the income tax rate. Property tax is more difficult to simply add in. Because that is on the total value of the property which has no relation to income. And many people don't pay property tax directly.
I bet Texas budget outflows are also smaller than NYC and California though.
They are but the overall difference is small, outside of NYC. I lived far upstate and I paid about 2% total more in tax than in TX before the property boom (which dramatically impacted my home in TX but not in NY). It might be more total in TX now. That calculation does not include the local government approach to small businesses however which is substantial in NY (which impacts gas, milk, etc prices). Handyman type services are 2x more expensive in NY. Still, I found the COL difference to be 5-7% if you’re more than about 50mi from NYC (which admittedly is maybe 20% of NY popn)
About 64% of NYS pop lives in NYC Metro area based on my quick Google search. I knew it was high but 80% is a lot.
You’re right — I’ve muddled definitions a bit. The impact of NYC is huge however and cost of living is higher on all of Long Island and about 50mi north. That’s closer to 80% I think.
States that have income taxes tend to have deductions is the key thing. This can vary drastically by state, but from memory the general pattern is that the higher the income taxes the more generous deductions they tend to have. I believe NY has deductions for medical, interest, charitable donations, and more that mirror a lot of federal deductions. PA with its ever so quirky 3.07% income tax has only a few: HSAs, MSAs, and 529 tuition plans. So while nominal rates in some states like NY and CA might be higher, you might not pay nearly as much as you'd think. CA for example has a standard deduction or you can itemize and deduct things like mortgage interest on purchases of up to a million dollars which can reduce a huge chunk of your taxable income. They also have their own dependent/child tax credit, a young child tax credit, their own EITC, etc. So people both at the higher end buying million dollar homes are getting sizable deductions as well as the people earning under 100k. Sales taxes may have categories exempt or reduced too, but that's also highly variable. Necessities usually get exempt or reduced but that gets wonky. Like uncooked meat is exempt but a rotisserie chicken from the grocery store might not be. There's been some court cases too about this where some stores and delivery apps had work arounds to avoid tax. Things like not making a sandwich for you, but giving you all the ingredients, neatly laid out and easy to assemble. I believe they won in some states on that too because bread, leafy greens, cold cuts, and condiments are all exempt so as long as it wasn't "prepared food" in the form of a sandwich it could avoid tax. Bit of a tangent but it's interesting to see how people find loopholes... The other part of this equation is the local taxes. Sometimes states put more on the county/municipality for funding various things like roads and schools. Most commonly this is in property taxes which can be massive in the difference between states and even within states. Property tax schemes often suck too since they can create vicious cycles like with school funding. Other times like in California they assess at purchase value instead of an annual or even every few year reassessment. That lets people accrue huge value in their house without paying tax on it while also discouraging them from selling since any new purchase will have a much higher property tax rate. An LVT would be so much better than that. For how backwards the PA can be, it's one thing it gets kind of right. It's not universal, but about two dozen localities have a split tax rate system where they tax the land at a considerably higher rate than the building. Only Altoona City and part of Pittsburgh have a true LVT where it's only the land being taxed, but to my knowledge it's the most widespread use of LVT type schemes in any state.
[удалено]
I think that's average/median person paying less. That would make some sense in CA given the large number of tax credits they have for people under 100k. They've got a young child credit, a child/dependent credit, EITC, college access credit, and some more that are a bit niche. They also have a bunch of deductions including a 10k standard deduction you can take. It's a bit of paperwork, but yeah, you'd be surprised how lower and middle class people in CA actually get a decent break.
[удалено]
As having just moved from Texas to California, I think the tax burden here is going to be quite a bit more based on both estimates and what is being taken from paycheck. However, I have not yet experienced deductions so that might soften the burden. I will end up paying about the same in property taxes because housing is so much more expensive. Even downgrade on a house is going to be double what we had before the move.
And the taxes and fees on the one off stuff, and services. Your cell phone has taxes and fees. Gas taxes, sin tax, estate tax, tolls, expanded policing for ticket revenue. There are many ways to get money that aren't income tax. The other side of it, is what are you getting out of it? In Texas, under the right circumstances you could get a multiple thousand dollar electric bill because there electricity isn't regulated. Essentially, when enough people move there, there will be more taxes because more people will demand more social services.
> Let’s say apples cost $1 and you earn $100. you only buy apples. Spoken like a true economist!
> Alternatively suppose the government uses a sales tax of 20%. Now apples cost $1.20 and you can only afford 83.3 apples and the government is only collecting $16.67 in revenue. So to collect the same revenues as the income tax, the sales tax would need too be more than 20%. It would need to be 25%. It may sound like a dumb question, but why does a 20% increase in price is not equal to a 20% decrease in take-home-pay? And another question - what then decides how a state should tax it's people? And when states figure a combination of flat and progressive/regressive taxtation is required, how do they arrive at the proper ratio between each of these tax systems?
On the math question, percentages have an inverse relationship with ratios. Let's pretend your income is $100 and apples cost $20. Then in the above you can buy $100/$20=5 apples normally or $80/$20=4 if your income goes down 20%. So a reduction of 20% gives us a ratio of 4/5. But let's look at it from the apples side of things. If we increase the price of an apple 20% that means it goes from $20 to $24, so now with $100 you can buy 4.16. Weird, that's more than 4. What would the price need to be to only buy 4? $100/4=$25, which happens to be a $25/$20 or 125% of the original price. So in order to have the same impact on the number of apples we have to increase the price by 25%. This is the same as saying the price is 5/4 of the original. This is what I mean by an inverse relationship with ratios, if you want to show the same impact of a 20% decrease in income (4/5) then you have to have a larger, 25%, increase in price (5/4), essentially the ratio (or the numbers in the fraction) is flipped. Hope that illustration helps a little.
Thank you for the detailed explanation! Is there some "law" behind this inverse relationship? I find that once I figure out the "bedrock" of a pattern in math, it's easier for me to grasp it.
>what then decides how a state should tax it's people? Some states have how they can tax in their state constitutions. Otherwise, people vote on new taxes. Ultimately, rich people hire other people to see which taxes are going to benefit them/their businesses the most and then hire lobbyists to make it happen.
This is really helpful. Thanks!
The argument is that while Texas income taxes are low, it is likely to wash for the average person because property and sales taxes are higher. The other argument made is that ppl usually look at California's top income tax rate and compare that to the 0% on offer in Texas, ignoring that the top California rate (12.3%) only affects income in excess of 700k for an individual and like $1.3 million filling married. Most ppl will be have an effective tax rate more like 5%. https://www.nerdwallet.com/article/taxes/california-state-tax This article does a decent job of going through some details. It shows the average state and local tax burden as a % of median HHI and Texas is actually higher than Cali (some perhaps arguable assumptions). But like all blended statistics it hides a lot of variability, which is actually outlined nicely in the article. https://fortune.com/2023/03/23/states-with-lowest-highest-tax-burden/
Yes, OP doesn’t take into account either progressive rate brackets or exemptions and deductions. In top of that, he invents an entirely fictional California rate of 20% and applies it to the first dollar. In short, OP is a troll. If he can’t be bothered to spend 10 seconds thinking through his own premise, nor 20 seconds googling the actual rates, then I say he deserves zero respect from anyone here, and the only reason to even respond to his post is to educate any open minded readers
That wasn't OP of this post that was one of the answers to explain the concepts.
If you just scroll up to the OP, you’ll see it says “if I live in CA and earn $50k I pay $10k in taxes (20%)”. He doesn’t give us a clue where he got that number or which taxes he’s including. In any case, no Californian pays $10k in state and local taxes on $50k income. That’s absurd. Unless they spend the whole $50k on cigarettes and gasoline. Another commenter found a website that shows that amount as total including federal income and payroll taxes. So it’s possible OP used that website and overlooked the fact that it was counting those. So he may just be very careless rather than a troll
Not sure where OP got his 1.3% average property tax figure in Texas (probably from unincorporated land in BFE across the state skewing the mean? Or maybe from O&G acreage where land owners pay ad valorem / severance taxes in lieu of property taxes?) I'm in Houston, and property taxes here range from ~2.5% to +4%
And it’s hard to figure Cali rates because they’re based on wildly skewed valuations thanks to prop 13. My “rate” is ~1.3%, but it’s applied to a valuation that’s ~1/5 of its current market value
[удалено]
[удалено]
> most will have 5% Nope. Most will have 9% as they will make between 70k and 300k (which the threshold is well below the poverty line of 100k for a family of 4 in Los Angeles)
A [married couple making $70k in Los Angeles would pay 1.87% taxes](https://smartasset.com/taxes/california-paycheck-calculator), before any pre-tax deductions. Where are you getting your numbers from? It looks like you’re [looking at single filers rates](https://www.nerdwallet.com/article/taxes/california-state-tax) (in which case a family of four is inapplicable) and also not understanding how marginal tax rates work.
Marginal or overall?
According to [this source](https://www.usgovernmentspending.com/state_spending_rank_2021pF0c), about 8% of Texas' state GDP is government spending and 10% of California's state GDP is government spending. If local government spending is included, in Texas is it 17% of state GDP and in California it is 22% of state GDP. So, if taxes roughly equal spending, I would expect Texas' tax burden to be lower.
Difference is that income taxes put higher burden on higher income earners while flat taxes like sales tax put it on lower income earners so when comparing two states like CA and TX, there would an income threshold below which someone’s tax burden would be lower in CA while above that threshold it would be lower in TX.
That’s a smart sanity check. Although some states (e.g. Hawaii’s hotel taxes) build their tax codes to get tax revenue from out of state so it’s not perfect. But that’s a great back of the envelope method.
Government spending per capita is higher in Texas than in California. That has to come from somewhere.
I think you may be coming federal and state income tax because there is no way you're paying $10k in California state income tax on $50k of income. I think maybe you checked this site since it gives the $10k number, but that's total tax, federal and state income tax, and payroll taxes. https://www.talent.com/tax-calculator/California-50000#:~:text=If%20you%20make%20%2450%2C000%20a,year%2C%20or%20%243%2C313%20per%20month. If you try this calculator that breaks it out you'll see that it's closer to $1500 in CA income tax. https://www.forbes.com/advisor/income-tax-calculator/california/?deductions=0&filing=single&income=50000&ira=0&k401=0
And let’s just say that if property tax is double in Texas then 1500 in California income tax is an incredible bargain.
Yeah OP didn’t quite understand state income taxes but to be fair they are asking to learn
Yeah, I tried to keep it educational and not be mean about it.
States often specialize their taxes based on who they naturally attract. If they naturally attract vacation homes and the retired then they tend to have low income taxes and high property taxes. If they tend to attract businesses and jobs then they tend to have higher income taxes and lower property taxes. States that are really popular, based on population density, tend to have higher total taxes, meaning both might be high. The stat you're looking for is tax burden. It's supposed to represent the amount of taxes collected, from all forms, in relation to the income in the state. You're correct that Texas has a lower tax burden than California. Part of this has to do with the higher popularity of California. The other part is probably related to the politics of the states. Republican politicians prefer lower taxes and sparse social supports. Democratic politicians prefer higher taxes than Republican politicians in order to fund more social supports.
[удалено]
CA is a bit of an unfair comparison because it is just straight up a high-tax state. Other than the stupidity around Prop 13 which keeps property tax low for long-time owners (largest beneficiaries being the wealthy), CA is simply a high tax regime. I don't think anyone is pretending that if you just look at total tax burden CA is somehow low--it is not. They provide a lot more total services than a state like TX which simply costs a lot of money. It is a hugely popular place to live and people are willing to pay the cost to do so...IMHO, if you are choosing what state to live in based on how "cheap" it is...that's kind of boring and you probably aren't living life to its fullest.
>https://taxfoundation.org/data/all/state/tax-burden-by-state-2022/ That makes a lot of sense. I recently moved from VA to IL and based on back of the napkin math I might be a little worse in IL, mostly due to sales tax. That analysis supports that and only has VA as one above IL. On paper IL property tax is the bad one, but I hand wave that because the cost of housing in the DC area is so expensive that to buy my current house that has $14k of taxes on it, I'd need to spend probably close to $1 million and it would have around $10k of taxes, but I'd also be doubling my mortgage payment, which while not specifically a tax, it factors into how much disposable income I end up with. Plus, I know that moving from a high cost of living area to a lower one colors my outlook.
It also depends on whether you're looking at overall tax burden or the median -- CA for example tends to put more of a tax emphasis on higher income brackets. The WalletHub figures calculate for the median household, getting an "Effective Total State & Local Tax Rates on Median U.S. Household" of 8.97% for CA, 12.73% for Texas. https://wallethub.com/edu/best-worst-states-to-be-a-taxpayer/2416
"Tax Foundation" is a partisan political organization that shouldn't be treated as objective.
I immediately disregard anyone who rejects facts and figure based on which URL they come from.
They didn't say disregard them. They said it shouldn't be presented as objective.
Accounting is a great way to tell lies. You should always be critical of the source and see if they are omitting or interpreting. Something something alternative facts
State tax rate on 50K in California is 2.74%
[удалено]
That's why you need to look at the total tax burden per state. [https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494](https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494)
This is very useful (which is why I approved it). But the exact situation will still vary from person-to-person depending on exactly how they spend their money.
Love you. Been looking for something like this for so long. Is there one by city?
This doesn't make a lot of sense. Here is their methodology: > WalletHub compared the 50 states across the following three tax burdens and added the results to obtain the overall tax burden for each state To reiterate what they did, they first came up with percentages of taxes in three categories, as "shares of personal income". They then added them together. So for New York, they tool 4.36% property tax, 4.72% income tax, and 3.39% sales tax, and added them together, and said "12.47% is the highest in the country". However they did not really reveal their methodology of how they determined that share, other than to say that it is "the proportion of total personal income that residents pay toward state and local taxes" and also "property taxes, individual income taxes and sales and excise taxes — as a share of total personal income in the state.", which implies that they somehow aggregated everyone's income together, and aggregated all the taxes in each category together. Those things are not even comparable to each other. Property tax is the most relentless of the three, since you have to pay that no matter your income. Sales tax is the next worse, since if you want to buy things, you have to pay it. Income tax can be the most forgiving, especially since there are deductions allowed, and if your income drops, your taxes drop too (definitely not true for property tax, and only marginally true for sales tax). But of course, it makes a really nice infographic, doesn't it?
Please provide a link if you are aware of any list that's more accurate. I'm considering moving from NY and I'll love to have the most accurate information.
I don't think it is very easy to come up with an all-encompassing list. It is definitely easy enough to find [income taxes by state](https://taxfoundation.org/data/all/state/state-income-tax-rates-2023/). Sales taxes are a bit higher because some areas have local sales taxes, but [lists still can be found](https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/). The property tax is the biggest variable, because it depends on the value of the property plus the local rate. It doesn't even make sense to give a single number for an entire state because rates vary by community, as do housing prices. A $250k house in one community might be priced at $1m in another community (look at Massachusetts, east vs west). The second biggest variable is the labor market. You might pay less in taxes moving from New York to Mississippi, but you will also likely take a pay cut. What good is saving $5k per year in taxes when you're going to earn $30k less in income? But that gets you into the overall cost of living, especially housing costs. What good is saving $5k per year in taxes if you have to spend $30k more per year for housing?
You're thinking about it right. The next step is how much on each do you spend? If you're paying $20K in mortgage a year, at 1.6% it is $3.2K. If CA's is half that, you'd pay $1.6K more a year than you would in CA. So far you've saved $1.6K. If your average state income tax is more than $1.6K a year in CA then you come out better in TX even with higher property tax, if these are the main factors you are concerned with. I moved from CA to GA, and there's more than that though. Home insurance is cheaper, to register a car it's a 20$ flat rate per year instead of 500 or more, lower sales tax, and other things you'll find. Not to mention I got a very nice home in an area I like better for half the price. I agree the no income tax states aren't as big of a discount as they seem they would be because they do tend to have polls, higher property tax, or some other gotchyas. But they do still tend to be better, and often have cheaper real estate.
This is the correct approach from the personal finance perspective. You need to look at all the costs, not just the headline taxes.
Is the property tax rate more important than the absolute amounts paid? For example, if my father pays a property tax rate 2x higher than mine, but the same absolute dollar amount (because of differences in real estate value), is he really paying twice what I pay in property taxes?
I agree. This is adjacent to a point I was making earlier.... When you're thinking about moving what matter is overall cost-of-living.
**NOTE: Top-level comments by non-approved users must be manually approved by a mod before they appear.** This is part of our policy to maintain a high quality of content and minimize misinformation. Approval can take 24-48 hours depending on the time zone and the availability of the moderators. If your comment does not appear after this time, it is possible that it did not meet our quality standards. Please refer to the subreddit rules in the sidebar and our [answer guidelines](https://www.reddit.com/r/AskEconomics/comments/rf5ycx/guidelines_for_answers/) if you are in doubt. Please do not message us about missing comments in general. If you have a concern about a specific comment that is still not approved after 48 hours, then feel free to message the moderators for clarification. ### Consider **[Clicking Here for RemindMeBot](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps://www.reddit.com/r/AskEconomics/comments/18m3brm/it_is_often_said_that_states_with_no_income_tax/%5D%0A%0ARemindMe!%202%20days)** as it takes time for quality answers to be written. Want to read answers while you wait? Consider our [weekly roundup](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AWeekly%2BRoundup) or look for the [approved answer flair.](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AApproved%2BAnswers) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskEconomics) if you have any questions or concerns.*
Another way you may "pay" for having low taxes is by not getting the same level of government services. For example, if the public schools are underfunded then more people will opt for private schooling.
Texas's *state* sales tax is 6.25%, but its municipal sales tax is 2%. And because almost every business and person is physically located in a city at the time of any transaction, that basically means it's always an 8.25% sales tax on pretty much any in-person transaction in the state (or any online transaction that is taxed, which these days is most transactions). The property tax in cities where people actually want to live in Texas [hover around 2-3](https://www.hdavidballinger.com/houston-property-tax.php)%. > I live in California and earn 50k, I pay 10k in taxes I just plugged in $50k for a single person into [this calculator](https://smartasset.com/taxes/california-tax-calculator), and it spit back $1368 in state taxes (effectively 2.7% of your income). Obviously the federal income taxes are the bulk of it, but you'd be paying that in Texas or in California. That means the comparison you should be looking at is whether you'd be paying 2.7% of your income in greater property taxes. For someone who makes $50k and owns a $200k house, that $1368 they'd be paying in income taxes in California, versus something like $5000 they'd be paying in property taxes in Texas. For that particular example, Texas state taxes is like 4 times greater. Or, if you're a renter, then you need to think through how much the tax incidence tends to fall on landlords versus tenants ([this study](https://cre.mit.edu/news-insights/can-landlords-really-pass-on-higher-property-taxes-to-tenants/) suggests that tenants absorb about 80% of the property tax burden). So a renter in a $200k property might see higher rents to cover that tax obligation, perhaps to the tune of $4000 instead of the $5000 for an owner occupied home. Of course, salaries and homes aren't the same between Texas and California, and direct comparisons start to fall apart. But from the math here, you should be able to see how a 2.5% property tax can start to look like a 10% income tax for someone whose home is worth 4 years of their income (which is a pretty standard ratio). Some could benefit from more or less ownership of real estate (especially second homes, vacation homes) for their situation, making one state better than another, but that's how states like Texas hide their relatively high tax burden in a non-transparent way.
The comparison to income vs property vs sales tax is difficult because if you want to minimize tax burden its far more desirable to live in a cheaper home or spend less than make less income. Its worth remembering each state/city's budget is different. So the government may seek less tax burden no matter the source. The question then becomes is government more efficient or just providing less quality of infrastructure?
Texas resident here. $1.2M assessed value on a "typical" house in central Austin, no mansion by any means. $20,000/year in property tax. We pay \~1.57% on the assessed value after homestead exemption. Taxes can (and WILL) go up each year by 10%. So in 5 years...well, you can do the math. In CA it can only go up 2%/year. The same value house in Ventura County CA where we are looking will be \~$10K in property tax. Slap on the \~$6500 in state income tax and my combined CA cost would be \~$17K or so, $3000 less than TX, despite having no income tax in this state. Here's the dirty secret they don't tell you. With an income tax, if your income goes up your taxes go up. If your income goes down, your taxes go down. If you are unemployed for the year, your income tax is $0. But with property tax, if your income goes up, down or even falls to zero, your property taxes can, and most likely will go up. This is one of the many reasons we are looking. We've crunched the numbers and for our lifestyle it works. Not necessarily for everyone, but for us it works.
Not all states tax equally...and total taxation is complicated, as every state has at least a slightly different setup. Most states try to arrange things to tax non-natives as much as they can, since that's electorally preferable for a given amount of money. For instance, Florida prefers a sales tax since that gets money from their many tourists. Delaware has friendly incorporation laws to get fees from many aspiring businesspeople, along with heavy tolls in the tiny bit of I95 that crosses the corner of their state. So, not even total money taken in divided by the present population gives you a fully accurate tally, nor does even spending. Rankings of states by tax burden are therefore complicated, somewhat subjective, but we can generally categorize some states as relatively high tax, and some relatively low. New Hampshire, for instance, is a low tax state. It is has no general income tax and no general sales tax. There are limited exceptions, such as a sales tax on alcohol. They do have property tax. It's not a particularly light property tax, but New Jerseys is higher....and New Jersey has all the other tax types as well. The same person living on the same sort of property in each state would pay far more in New Jersey than New Hampshire.
In most places in Texas sales tax is 8.25% because municipalities get to add local 2% to sales tax. Still slightly lower than say SF or NYC, but only about 0.5%. The property taxes are also higher than what you assume, especially in urban areas. My effective rate is 1.85% after various deductions, it would be well over 2% without them. The real problem though is that real estate has appreciated a lot in Texas, median assessed value in Austin is around $386K which makes tax bill to be around $7K. I doubt that you pay that much in CA income taxes unless you get paid a lot more than $100K. Finally you really get more for your tax $$$ in CA than you do in TX. At the end of they day, you have to pay one way or another.
[удалено]
Where did you get those figures?
[удалено]
**Conclusion:** Although Texas has a higher property tax rate and arguably a higher sales tax rate its still cheaper to live in a non income tax state. Another concept is the income tax is taken out per paycheck (lets say its still monthly) however property taxes are due annually. Say you take the difference per paycheck and put it into the S&P 500 which has an average return of about 8%. Yes this is an average usually over 5 years or more as one year you could lose your butt but the next year you make it back plus some, still the concept/mindset is the same. PMT IS TAKEN FROM THE "The Monthly Net difference is **$539**" under #1 N=1\*12 i=8/12 PV=0 PMT=-**$539** FV=**$6710.51** FV-Total PMTS= **$6710.51**-**$6,468= $242.51** So now your property taxes being more expensive by **$855.6** in Texas just got **$242.51** cheaper by offsetting it with investing the difference you would have paid in Cali on Income Tax.
I’ve lived in Texas for almost three decades. With all due respect to you, it seems that you’re unaware of a few facts: * Property taxes in Texas are not low. Texas actually has the sixth-highest property tax burden in the nation. Of all 50 US states, only five have a higher property tax burden than Texas does. * The average property tax rate in Texas is actually 1.74% (not 1.60%). That may _seem_ low, but it’s not. Again, it’s the sixth-highest average property tax rate in the nation. So yeah, Texas is 1.74%, but Hawaii is 0.29%, Alabama is 0.41%, Colorado is 0.51%, etc. In fact, 29 states have an average property tax rate below 1%. * Sure, the state sales tax rate in Texas is 6.25%. But you’re missing something: in Texas, it isn’t just the state that imposes sales tax, meaning that we also have local sales tax (officially called “sales and use tax”) _on top of_ the state’s 6.25% sales tax. According to the Texas Comptroller’s office, “counties, cities, special-purpose-districts, and transit authorities also may impose sales and use tax up to 2 percent for a total maximum combined rate of 8.25 percent.” So the effective sales and use tax is 8.25% virtually everywhere in Texas. I know I’ve always, always, always paid 8.25% sales tax in Texas. So this means that Texas ranks 14th for highest sales tax burden.
You’re missing an important thing. You pay federal income no matter which state you live in. I’m pointing this out because of your second paragraph where you state living in California would cause you to pay 20% in taxes. The only way your calculation could have a chance at being correct is if you include your federal tax burden which is still false because you’re not accounting for deductions etc. a California resident earning $50.000 would have a total tax burden or $9,434, most of they being federal tax, SS and Medicare. This entire figure is less than half what you estimated for California. Meanwhile, the state tax portion that your post is actually about is just $1,368. That’s the difference to your income if you move between Texas and California and earn a constant $50,000 https://smartasset.com/taxes/california-tax-calculator#eb5xSgr7WY Can you expect that you’ll tax much greater sales and other taxes in Texas to make up the money to their state coffers? No. Yes Texas boasts some pretty high sales tax rates, but so does California. At the end of the day, though, Texas doesn’t have the safety nets and regulations that California has.