Tax Rant I - states and rankings

[freebird5825]

I had to find out where NY stood. i've been working on my fed & state taxes and felt the need to validate the fact that I am paying again this year, to the tune of $3K combined.


i worked one quarter full time in 2007.

next year WILL be better, right folks?

cheers and jeers (for the list of states) are welcome.


from Taxes by State, extracted from another post about places to retire to:

The top five states where the tax burden as a percent of income is the highest are: Vermont (14.1%), Maine (14.0%), New York (13.8%), Rhode Island (12.7%), and Ohio (12.4%).

The United States average is 11.06%. The District of Columbia is 12.5%.

The five states with the lowest tax burden as a percent of income are: Alaska (6.6%) 50th, New Hampshire (8.0%) 49th, Tennessee (8.5%) 48th, Delaware (8.8%) 47th, and Alabama (8.8%) 46th.

 

[ziggy29]

Well, the important thing with a list like this is to look at specific taxation of income, sales and property, and inject your position onto it.

For example, I live in Texas (43rd). If one has a low income, lives above their means and owns a large home, it's a TERRIBLE place to retire in terms of taxes because the lack of state income tax doesn't help a low income much, and the high sales taxes and property taxes are a killer.

On the other hand, if you own a small, low-value home here, live well below your means and have a healthy income, it's one of the best places from the tax standpoint. The high sales and property taxes are applied to a low amount, and the high income isn't taxed.

 

[W2R]

I don't like any kind of tax this afternoon. Guess I have to pay it, in order to ensure decent infrastructure and amenities, but I do so grumpily.

 

[jIMOh]

I have been saying for years Ohio taxes are bad, and people do not believe me. I cannot wait to move here (of course Buffalo, NY was my first choice for new location, so not like I would improve much).

But at least the football team and food would be better, plus more family around.

 

[Notmuchlonger]

California stinks tax wise also. 9.3 % on income and 7.75 sales tax in my area.

 

[Buckeye]

jIMOh - State taxes are just the start in Ohio. Be sure to add local and school district. I fill out FOUR tax returns living in OH when Federal is included. FOUR tax returns! And then add property tax (reasonable) and sales tax (6.75%). It's ridiculous! There are a lot of hard working people in OH but it sure isn't because the tax environment encourages them to work and be productive.

 

[Patrick]

Wow. DC has the highest per capita income. Imagine that.

 

[Patrick]

I don't like any kind of tax this afternoon. Guess I have to pay it, in order to ensure decent infrastructure and amenities, but I do so grumpily.

Yes. And don't forget $3 billion a week for the Iraq occupation, 700 million for Africa AIDS intervention, 10 billion for Pakistan aid, 30 billion to help Israel, etc. It's no wonder working people have to work til May just to pay taxes.

 

[W2R]

Yes. And don't forget $3 billion a week for the Iraq occupation, 700 million for Africa AIDS intervention, 10 billion for Pakistan aid, 30 billion to help Israel, etc. It's no wonder working people have to work til May just to pay taxes.

Oh, now THAT really cheered me up about paying taxes! Also you forgot the mortgage bailouts and entitlements coming up pretty soon.

 

[FIREd]

Yeah baby, Alabama is a dream when it comes to taxes. Income taxes are 5%, property taxes are 0.56% of property value where I live, the state sales tax is 4%. I call Alabama a low tax low service state, so you don't pay much, but don't expect much in return either.

 

[Patrick]

Oh, now THAT really cheered me up about paying taxes! Also you forgot the mortgage bailouts and entitlements coming up pretty soon.

I don't think they'll tax for those, they'll just run the money printing presses overtime, creating hyperinflation and crushing the dollar. Get ready for $10 gas and milk.

 

[W2R]

I don't think they'll tax for those, they'll just run the money printing presses overtime, creating hyperinflation and crushing the dollar. Get ready for $10 gas and milk.

Wow, I think you have "out-grumpied" me this evening! Let's see - - $25 for a dozen eggs? $50 for a dozen bananas? $49.95 for paper towels? $750,000 for a new Camry LE? Why bother to save at all. We'll be poor until the day we die.

 

[jazz4cash]

I've been curious how Delaware (Small Wonder) manages to keep taxes low compared to neighboring MD where I live and other East coast tax dragons. DE has no sales tax on anything, property values and taxes seem to be moderate, and they have some tax relief for retirees also. I ask residents about it all the time and they claim "it's not a good as it appears".

 

[clifp]

I've been curious how Delaware (Small Wonder) manages to keep taxes low compared to neighboring MD where I live and other East coast tax dragons. DE has no sales tax on anything, property values and taxes seem to be moderate, and they have some tax relief for retirees also. I ask residents about it all the time and they claim "it's not a good as it appears".

Corporate incorporation. You might think that Google, Intel, Apple, HP, Wells Fargo are California corporations, but you'd be wrong. They are all Delaware corporations, and Delaware collects a nice fee. Not sure how much revenue they get but I know it is significant.

South Dakota lack of usary laws makes them a headquarters for most credit card company operations and makes that state a big chunk of change.

 

[Orchidflower]

I have some rudimentary knowledge of Delaware negatives: 5.95% on earnings above $60K (sliding scale, tho) and a real problem with the drinking water there. Supposed to be dangerous from all the chemicals that Dow has dumped in the Delaware River over the century. Lots of health problems. Lots of angry residents from what I understand, too.
Wilmington, the only real city there, was a central meeting area for drug importation, also, bringing high crime events to the area.
Go to city-data.com and read the Delaware board to find out more.

 

[Nords]

Back before Bloomberg sold "Wealth Manager" to Highline Media, they used to run an annual article that ranked state taxes.

What I found interesting about the rankings was how the states differed for various types of people. Hawaii consistently ranked very highly for retirees but not so highly for workers.

So it's not just property taxes & income taxes. I'd love to see if a magazine or research firm picked up Bloomberg's annual task.

 

[jazz4cash]

I have some rudimentary knowledge of Delaware negatives: 5.95% on earnings above $60K (sliding scale, tho) and a real problem with the drinking water there. Supposed to be dangerous from all the chemicals that Dow has dumped in the Delaware River over the century. Lots of health problems. Lots of angry residents from what I understand, too.
Wilmington, the only real city there, was a central meeting area for drug importation, also, bringing high crime events to the area.
Go to city-data.com and read the Delaware board to find out more.

By comparison, MD is 4.75% above $3K (yeah, 3, not 30), but we also have 6% sales and ~1.2ish property tax, High property values, and an aggresive appraisal cycle. We're right up there with NY,NJ, and MA. No wonder lots of Delawareans commute to Baltimore, MD and Phila, PA.
Thanks for the city-data reference....cool site.

 

[ladelfina]

I coudn't find it quickly with the search function here, but I know someone posted a link in a thread not long ago.. that compared, at least as a minimum screen, data for three different types of families and the impact of state taxes in each state. Of course it didn't take into account all personal vagaries, but compared 3 basic categories of taxpayers: working-class family vs. high-earning DINK vs. retiree.. something along those lines. Sorry I can't come across it, but maybe someone else here remembers it and can get a better bead on the thing. I want to say the source was Forbes, but I could be mistaken.

 

[Orchidflower]

I just ordered a book called "America's Best Low-Tax Retirement Towns" that gives, I understand, a breakdown of 3 types of incomes and housing costs like you are speaking about, ladelfina. Not that Forbes couldn't have done the same thing, but this book is well known and on the 3rd edition.
wealthfriendly.pdf also will give you 4 different scenarios in each State. This does not take into account each county--and often each city--has some different tax breaks.
Take a look at that one, too, as it is pretty good and rates them A thru F.

 

[ladelfina]

Thanks, Orchidflower.. I remember looking at that PDF.. that's exactly the chart I had in mind. The full link is here:
http://www.jpaulknight.com/investing/wealthfriendly.pdf

You're right about local rates.. you have to dig around. I remember looking at two next-door counties with completely similar characteristics, but.. one had a prop.tax rate of 1.1%, the other 1.6%.. a big difference! I imagine few people investigated this kind of stuff prior to the Internet.

I would also check out the financial health of your chosen town/county and the property price trends. If prices were run up and are now on the skids, the local gov. will have been spoiled and will be looking for some new tax crack to get high off of.. today's rates could go up at any time.

 

[Notmuchlonger]

Then you need to compare the cost of living in those areas. I noticed a few areas that scored well for retirees the cost of living is some of the highest in the nation. Still another useful tool in deciding where you would like to end up.

 

[Orchidflower]

I keep requesting the free trial offer of "Where to Retire" as it is such a great magazine...and I am too cheap to buy a subscription, I guess. Eventually they will catch on to me...
Anyway, they have an article this month talking about high tax States for retirees. Illinois (where I am now) and Texas being two. They go on to say that Texas is one of the hot retirement areas, but that the taxes (8.25% sales tax, high-high property tax) are not good for retirees. However, they also have a big, fat article with colored photos on The Woodlands section of Houston in this same issue. I guess they are encouraging us moving there--despite the high tax situation for retirees. Huh?
(Just to illustrate Notmuchlonger's point above.)

 

[ziggy29]

They go on to say that Texas is one of the hot retirement areas, but that the taxes (8.25% sales tax, high-high property tax) are not good for retirees. However, they also have a big, fat article with colored photos on The Woodlands section of Houston in this same issue. I guess they are encouraging us moving there--despite the high tax situation for retirees. Huh?

As I've said earlier, depending on your specific situation, Texas can either be a good state or an awful state for retirees.

Texas has a high sales tax and a borderline-punitive property tax, it is true. However, there is no state income tax. So one has to look at all factors of their own expected situation in retirement:

* How much taxable income one plans to generate each year
* How much taxable "stuff" you plan to buy
* How much house you plan to buy (keep in mind that a $200K home in TX could be a $400K home in a place with half the property taxes, making it a wash).

For a retiree that plans to trade down to a small, low-priced home and has an LBYM lifestyle with a significant income, the lack of a state income tax is FAR more important than the high sales and property tax, and Texas would be on a "short list" of potential destinations from strictly a tax standpoint (until REWahoo convinces you otherwise).

If, on the other hand, you are going to be house-rich and cash-poor, without a large income, and you want to spend your nest egg like there's no tomorrow, look elsewhere. And even then, while property tax RATES are high, property VALUES are much more affordable than in many other places, which at least partially cancels out the high rate.

That's the problem with lists like this which rank states in order of taxation. Taxation of individuals is a three-legged stool -- income, sales and property taxes -- but each leg is not equally important in all situations.

 

[REWahoo]

For a retiree that plans to trade down to a small, low-priced home and has an LBYM lifestyle with a significant income, the lack of a state income tax is FAR more important than the high sales and property tax, and Texas would be on a "short list" of potential destinations from strictly a tax standpoint (until REWahoo convinces you otherwise).

In case you aren't familiar with the state's geography and climate, here are a couple of photos to give you feeling for the seasons.

Those who truly understand LBYM seem to feel right at home here...

Winter in TX

Summer in TX