Benjamin Franklin famously proclaimed, “In this world nothing is certain but death and taxes.” And each April, the citizens of America are reminded of the eternal truths of these words when Uncle Sam comes knocking on our doors.
Between federal & state income taxes, government claims a large percentage of American’s earnings each year. But there are 9 states in the Union who do not collect income taxes from their residents.
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming often advertise their income tax-free status as boons to prospective transplants looking to keep more of their money.
But are these states any more affordable?
As noted by Rent.com, many states that do not collect income taxes must make up for lost revenues in other ways through various other taxes.
“For example, Tennessee doesn’t have a state income tax, but it does pile on others. The Volunteer State imposes taxes on dividends and interest earned (being phased out in 2021), a state sales tax on food, a tax rate for taxable services and a local sales tax designated by cities. That means sales tax is as close to 10 percent in some areas.”
Sales taxes are the most common tools used to collect revenues which may have otherwise been received through income tax, with rates ranging from two percent up to eight percent in different states around the country. Taxes on resources such as fuel are also common in many states and can undercut savings from keeping more of your paycheck.
“There’s no state income tax in Washington, but it’s high gasoline tax leads to some of the highest prices at gas stations in the country. At the same time, Wyoming and Alaska make up for the loss of state income tax by taxing their natural resources, like coal mining and oil drilling.”
Other states such as New Hampshire and Texas make up for lost income tax revenues through some of the highest property taxes in the country.
But unlike Texas, New Hampshire offers residents a reprieve from both income and sales taxes and is one of only 5 states in America who do not charge sales taxes.
Still Texas has managed to become not only one of the fastest growing economies in the country, it is also one of the most affordable and ranks highly on cost of living ratings, according to BizJournals.com.
One reason is that despite high property taxes-the 7th highest in the nation-Texas residents are getting more bang for their buck compared to other high tax states such as California.
“When factoring in median cost per square foot, however, Texas homeowners still get more single-family homes for the price than they would in any of these states, potentially offsetting property tax…”
Ultimately, it is an oversimplification to equate income tax with affordability. Examining cost-of-living ratings for each of the 50 states shows that only one of the “income-tax free” states make it into the top 10 cheapest to live – Tennessee.
Rather, income-tax is just one factor amongst many such as the local job market, cost of resources, cost of medicine, real estate, and more, which determine how truly affordable one geographic location is compared to another.
Instead, it appears that income-tax free policies are offset through other methods that allow the local populations to enjoy many of the services provided by tax revenues without giving their money directly to the state.
A win-win for all.
Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.
Image Credit: Photo by The New York Public Library on Unsplash