August 7, 2008
What's New?
New Jersey taxpayers bear the heaviest state-local tax burden in 2008, and Alaskans have the lightest tax burden, according to a new report from the Tax Foundation. In Tax Foundation Special Report, No. 163, "State-Local Tax Burdens Dip As Income Growth Outpaces Tax Growth," senior economist Gerald Prante computes each state's combined state-local tax burden, accounting for taxes paid out of state.
The nation as a whole paid 9.7% of its income in state-local taxes, down from 9.9% in 2007 primarily because income grew faster than tax collections between 2007 and 2008. New Jersey residents paid 11.8%, topping the charts. New Yorkers were close behind, paying 11.7%, and Connecticut was third at 11.1%. The top ten were rounded out by Maryland (10.8%), Hawaii (10.6%), California (10.5%), Ohio (10.4%), Vermont (10.3%), Wisconsin (10.2%) and Rhode Island (10.2%).
Read the full report. View the data by state or by year. Click here for details on each state's tax system.
Every year the IRS publishes data on which income groups pay the most federal individual income taxes. This data is used extensively by researchers and policy groups trying to shed some light on exactly who pays taxes, and how much.
The IRS has now published the same data by state, showing how much residents of each income group in each state send to Washington each year. The new numbers provide some fascinating insights into how much tax is paid by wealthy individuals in certain states.
For example, the top 1 percent of tax returns (150,000 returns) in California alone pay more in federal individual income taxes than the bottom 50 percent of taxpayers in the entire country. Put another way, 150,000 wealthy taxpayers in CA pay more than 66.6 million taxpayers nationwide. The same is true of New York, Texas, and Florida.
Click here to see the data.
A humorous new Tax Foundation YouTube video titled "Dream Job" addresses the problem of the United States' high corporate tax rate.
While Americans pay close attention to individual tax rates, many tune out when the conversation turns to business taxes. This is a mistake. The tax climate for business should be important to all Americans, regardless of whether they actually own businesses themselves. Businesses pass their tax burdens on to their customers, employees, and shareholders. In fact, Tax Foundation research shows that in 2005 the average household paid $2,757 in business taxes.
Anybody who owns stock in a company stands to lose if higher tax rates reduce that company's earnings growth. Additionally, basic economics tells us that a corporation forced to pay high taxes must offset that cost by taking one of three courses of action. Charge higher prices, although competitive pressures can limit this option. Pay less in profit to investors, but investors' funds are nimbly re-invested elsewhere when profits dip. Finally, the company can pay lower salaries, give less generous employee benefits, or hire fewer people. In the increasingly dynamic economy, it could also mean that businesses relocate to places where the tax climate is more inviting.
Click here to watch the video. Click here for more on corporate taxes.
New data released by the IRS for tax year 2006 show that both the income share earned by the top 1 percent of tax returns and the tax share paid by that top 1 percent have once again reached all-time highs. In 2006, the top 1 percent of tax returns paid 39.9 percent of all federal individual income taxes and earned 22.1 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes.
Click here to read the new study or view the data in Excel, FlashPaper, or PDF.
Local-level taxes on wages, earned income, or occupational privilege have accumulated in states with poor business tax climates, according to the latest analysis from the Tax Foundation.
In Tax Foundation Fiscal Fact No. 133, tax counsel Joseph Henchman examines the resident and non-resident income tax rates of cities and counties in sixteen different states. Henchman points to six states with widespread local income taxes—Indiana, Kentucky, Maryland, Michigan, Ohio, and Pennsylvania. With the exception of Indiana, all are ranked among the states with the worst business tax climates according to the Tax Foundation's 2008 State Business Tax Climate Index.
Read the new analysis, "County and City Income Taxes Clusters in States with Poor Tax Climates."
Tax Watch is the Tax Foundation's quarterly tax policy newsletter, presenting our economic research and analysis in a simple, non-technical format—ideal for the non-economist looking for a clear explanation of current tax issues.
Highlights from the Summer 2008 issue include:
- Sizing Up Obama's Social Security Tax Plan
- Senate Testimony: Time to Clean Up the Tax Code
- U.S. States Lead World in High Corporate Taxes
- High Gas Prices Fuel Tax Debates
Click here for a free subscription to Tax Watch. Click here to read the new issue (PDF). Click here to read previous issues of Tax Watch.
