Kiplinger recently updated its list of the 10 most tax-friendly states in the United States. While this is a somewhat subjective list, it is interesting to consider in terms of your own economic freedom.
You will probably also be surprised by some of the states that make the list. The obvious ones such as California, New York, and Illinois are not on there, but there is at least one that is known as more of a left-wing state.
Probably the most surprising, and also the one first on the list, is Delaware. This is the home to Joe Biden. It is also a state that has an income tax. So why does it come out so well as a tax haven, comparatively speaking?
The biggest factor is that Delaware has no sales tax. This is a huge saving for consumers. Most people don’t realize just how much they spend each year on sales taxes. If you have to pay 7% extra on almost every single new thing that you buy, this ends up being several thousands of dollars every year for a typical middle class family, even if some food items are exempt.
Delaware also does well with hidden taxes and fees, including gas taxes. Property taxes are also quite low, as Kiplinger reports they are the fourth lowest in the nation.
Wyoming comes in second with no state income tax and a relatively low 4% sales tax. While hopefully this is not a huge budget buster for you, Wyoming does boast of having the lowest beer tax in the U.S. With the cold winters there, I’m sure this is much appreciated by many who can’t find a lot of other indoor activities.
Alaska is third with no state income tax and no state sales tax, although local municipalities can impose a sales tax. Alaskan residents also famously receive the equivalent of a dividend payment each year from oil taxes. Of course, you should consider the weather and daylight factor before moving to Alaska for financial reasons.
Rounding out the top ten are Louisiana, Alabama, Mississippi, Arizona, New Mexico, Nevada, and South Carolina. In other words, the last 7 on the list are all southern states. These are a bit less surprising, even though most of them have a state income tax. Nevada does not.
One thing notable is that these all tend to be smaller states in terms of population. While Texas and Florida do not have state income taxes, they did not make the top-ten list. This somewhat supports the notion that decentralization tends to be better for liberty. When there are fewer people, they tend to keep a tighter leash on the state government from imposing confiscatory taxes.
Your Own Factors
These lists are interesting and educational, but they should always be taken in context with your own situation. You have to apply your own weights to each factor.
This goes with any factor involving liberty. You may think that legalizing marijuana is an important issue in terms of personal liberty. But if you personally have no interest in using marijuana, then you don’t need to rush to move to Colorado. Symbolism is sometimes important, but it probably shouldn’t carry a lot of weight in our personal decision of where to live.
For someone who makes a high income and is flexible in where they can live, they will probably look for a place with low or no state income tax. Of course, there are a lot of high incomes in California, but most of these people are tied to their jobs there or they just like the culture and lifestyle. They either put up with the high income tax or they actually promote it in order to assuage their own guilt.
I believe that the biggest financial factors for living in any particular state are employment opportunities, property taxes, sales taxes, and income taxes. In addition, you have to consider the overall cost of living in relation to your income opportunities.
I don’t understand why someone making $60,000 per year in a big city in California would stay there, but I do understand that subjectivity is everything. There are certain cultural and lifestyle factors, including family, that are more important than financial factors.
It is understandable why so many people live in big cities with high taxes. That is where the opportunities tend to lie, although that is becoming less true in our technological age. I understand people living in expensive Silicon Valley if they are working for the likes of Google or Facebook.
If the culture and lifestyle don’t matter that much to you and you don’t care about the beach, then there are a lot of options for southern states with a relatively low tax burden and a low cost of living to go along with it.
Unfortunately, as some of the unaffordable northern states lose people, they are bringing their ideas with them to the lower-cost and lower-taxed states. They promote high taxes and big government in places such as Illinois and New York. Then when everything is all messed up and unaffordable, they move out and unfortunately don’t learn their lesson. They then promote their big government ideas in an area that doesn’t really want them.
Even with that, I believe the southern states and the smaller states will tend to remain the most tax friendly. Plan accordingly if this is an important aspect of where you take up residence, whether it is in retirement or just starting out in the workforce.