Tax Bytes

2023’s Tax Burden By State

Tax Day is approaching on April 18 and 73% of Americans think that the government does not spend their tax dollars wisely

To determine the residents with the biggest tax burdens, WalletHub compared the 50 states across the three tax types of state tax burdens — property taxes, individual income taxes and sales and excise taxes — as a share of total personal income in the state. Review the full report here, and it 2023 tax facts infographic here.

This year, Uncle Sam will take his cut of the past year’s earnings on April 18. Many taxpayers are undoubtedly wondering how this year’s Tax Day will affect their finances, as a lot of people are still struggling financially as a result of the pandemic. Since the tax code is so complicated and has rules based on individual household characteristics, it’s hard for the average person to tell how they will be impacted.

One simple ratio known as the “tax burden” helps cut through the confusion. Unlike tax rates, which vary widely based on an individual’s circumstances, tax burden measures the proportion of total personal income that residents pay toward state and local taxes. And it isn’t uniform across the U.S., either.

States with Highest Tax Burdens (%)States with Lowest Tax Burdens (%)
1. New York (12.47%)41. Oklahoma (7.12%)
2. Hawaii (12.31%)42. Missouri (7.11%)
3. Maine (11.14%)43. Montana (6.93%)
4. Vermont (10.28%)44. South Dakota (6.69%)
5. Connecticut (9.83%)45. Wyoming (6.42%)
6. New Jersey (9.76%)46. Florida (6.33%)
7. Maryland (9.44%)47. Tennessee (6.22%)
8. Minnesota (9.41%)48. New Hampshire (6.14%)
9. Illinois (9.38%)49. Delaware (6.12%)
10. Iowa (9.15%)50. Alaska (5.06%)

Key Stats – Tax Facts Infographic

Americans spend 6.5 billion hours doing taxes each year. The average person spends 13 hours and $250 completing their 1040.

92% of tax returns are expected to be filed electronically. The average refund in 2023 is $3,079, as of 2/24/2023.

Taxpayers had difficulty reaching the IRS by telephone during the 2022 filing season, with only 10% of calls receiving live assistance and hold times averaging about 29 minutes.

Expert Commentary

What’s the relationship between state tax burden and economic growth?

“I suspect that higher tax burdens would cause businesses to relocate to lower-tax states/jurisdictions and inhibit growth, but there may be contrary empirical evidence – for example, high-tax locations like Cal and NYC have had lots of growth. But this is an economic or empirical question more than a legal question, and I think causation might be difficult to determine.”
Gregory Germain – Professor, Syracuse University College of Law

“Many people disagree on the relationship between state tax burdens and economic growth. There are good arguments why, all else equal, a higher tax burden reduces economic growth. On the other hand, there are also strong arguments that certain kinds of public investments – such as in education, transportation, and infrastructure – can increase economic growth, and taxes enable states to make those investments. At the end of the day, the answer probably depends not just on how much a state taxes, but also on how those taxes are structured and what the state spends its money on.”
Jordan Barry – Professor, University of Southern California

How will inflation affect local governments’ tax revenues?

“At first, you would see inflation increasing prices of sales-taxable items and say it would be a win-win for local tax revenues. But as I have seen many have reduced spending on higher taxable items and are simply purchasing what they need, not many high-item luxury items. So, with that concept, local sales tax is reduced. Overall, I see inflation being a small negative, but a true negative to local tax revenues.”
Joseph Krupka, CPA/PFS CGMA – Assistant Teaching Professor; Program Coordinator of the FSUPC Accounting and Financial Planning Programs, Florida State University, Panama City

“As a past governmental auditor, I know that states often require counties and municipalities to maintain a balanced budget (expected revenues should equal expected expenditures). As we all know, inflation has a direct effect on prices. Therefore, if we make no changes to our spending, we can expect expenditures to increase during times of inflation. So, governments will face a choice of scaling back expenditures or increasing revenues. Typically, increasing revenues can be achieved by expanding a tax base, changing a tax rate, or creating a new tax. In any case, the taxpayer would experience an increase in their taxes. Therefore, inflation will likely result in decreased government spending or an increased tax burden, which are neither ideal for citizens.”
Patrick L. Hopkins, Ph.D., CPA – Assistant Professor, Texas Christian University

Should states and localities tax property at different marginal rates like they do income?

“Property taxes are basically a regressive wealth tax assessed at the local city or town level. Typically, they are used to fund the towns or cities’ operating budgets and fulfill their obligations. Many states offer credits for property taxes paid to the local jurisdictions to offset State income taxes or federally subsidized veterans and elderly credits to offset the property taxes. As a regressive tax, property taxes should not be tied into a progressive tax system.”
James N. Mohs D.B.A. – Associate Professor, University of New Haven

“The answer depends on one’s view of fairness. If one believes that wealthier people should pay higher tax rates than higher marginal rates on more valuable properties would seem ‘fairer.’ People who believe in flat taxes are more fair than graduated rates would find flat taxes to be fairer. This strikes me as a political question based on individual notions of fairness.”
Gregory Germain – Professor, Syracuse University College of Law