New York, California and Illinois were among the states with the highest tax burden, according to data from the Tax Foundation.
The international research think tank’s study was for the 2022 tax year and analyzed tax revenue data from the Census Bureau, “quarterly tax data through the end of calendar year 2021, up-to-date national accounts data and economic forecasts, and adjustments for recently adopted tax policies.”
The Tax Foundation defined tax burden as “state and local taxes paid by a state’s residents divided by that state’s share of net national product.” Net national product is GDP minus depreciation.
Explore the interactive map below to see what your state’s tax burden is.
High Tax States: Better Services, Higher Costs
New Yorkers faced the highest tax burden in the nation, with 15.9 percent of the state’s net product going to state and local taxes. Close behind were Connecticut at 15.4 percent and Hawaii at 14.1 percent. These states often have higher tax rates due to substantial public service expenditures and economic structures that require higher revenue streams to support their budgets.
For instance, New York and Connecticut’s high tax burdens are partially due to significant payments made to out-of-state governments. Connecticut residents, for example, often work in New York City, contributing to both New York State and city taxes.
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Additionally, high-income states like Connecticut and New York experience higher capital gains taxes, further elevating their tax burdens. According to the study, “high expenditure levels, which must be sustained by high levels of revenue,” contribute significantly to these states’ elevated tax rates.
In Hawaii, a considerable portion of the tax burden is generated by the tourism industry, effectively exporting a significant part of the tax load to visitors. This helps explain why despite the high tax rates, the economic incidence—the burden actually felt by residents—can be mitigated by non-residents’ contributions.
Low Tax States: Limited Services, Lower Costs
Conversely, states like Alaska (4.6 percent), Wyoming (7.5 percent), and Tennessee (7.6 percent) boast the lowest tax burdens.
Alaska, with the lowest burden, benefits from significant tax exporting through its oil extraction taxes, with 60 percent of state and local tax collections coming from non-residents in 2022.
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These taxes predominantly impact oil industry investors rather than Alaska residents. As a result, Alaska can maintain lower tax rates while still funding state services.
Similarly, Wyoming and South Dakota benefit from the absence of major taxes such as personal income tax, relying instead on other forms of taxation that are often more exportable.
This approach allows these states to maintain lower tax burdens for their residents while still generating necessary revenue.
Impact of Tax Burdens on Population Movements
Tax burdens significantly influence population movements, with many residents opting to relocate based on tax rates and the quality of public services. High tax states often provide better-funded public services, including education, healthcare, and infrastructure, which can attract residents despite the higher costs. However, the high cost of living and tax rates can also drive people to move to lower tax states.
Low tax states often market themselves as attractive destinations for individuals and businesses seeking to reduce their tax expenses. States like Florida and Texas, which do not levy personal income taxes, have seen substantial population growth as a result. According to the Tax Foundation, “many of the least-burdened states forgo a major tax,” making them appealing for people looking to lower their tax liabilities.
Shifting Tax Burdens Across State Lines
Tax exporting plays a critical role in the distribution of tax burdens. Nationwide, about 20 percent of state and local taxes are collected from nonresidents, meaning the residents of all states pay surprisingly high shares of their total tax burdens to out-of-state governments.
This tax shifting occurs through various mechanisms, such as non-residents paying property taxes on vacation homes or tourists contributing to sales and excise taxes.
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For instance, Maine and Vermont collect a sizable fraction of their property tax revenue from non-residents who own vacation homes in these states.
Despite this, both states still rank high in tax burdens, illustrating that high non-resident contributions do not always equate to lower resident tax burdens.
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