A new study shows stark disparities in the lifetime tax burdens Americans face across different states, shedding light on the considerable financial sacrifices taxpayers make nationwide.
In 2023, American taxpayers paid the federal government over $2.18 trillion in personal income taxes. The study, performed by financial website Self, showed that the average American is estimated to pay $524,625 in taxes throughout their lifetime, accounting for approximately 34.7% of their estimated lifetime earnings of $1,494,986.
Residents of New Jersey will pay the most in lifetime taxes, at $987,117, followed by the $884,820 taxpayers in the District of Columbia will shell out. In contrast, individuals in West Virginia bear the lowest lifetime tax burden, with an average of $358,407.
Income tax emerges as the primary contributor to the lifetime tax burden for most Americans, with the average individual expected to pay $270,414 in taxes on their earnings alone over their lifetime. Additionally, taxes on property ownership, car ownership and everyday expenses further contribute significantly to the overall tax burden.
The study underscored notable disparities in tax burdens across regions. States such as New Jersey, Connecticut and New York have significantly greater tax liabilities than states like Alaska and West Virginia.
According to USA Today, Americans moved to several low-tax states in 2023, including Alabama, Arkansas, New Mexico, North Carolina, South Carolina, South Dakota and West Virginia. “I think it has clearly factored into the migration,” Chester Spatt, professor of finance at Carnegie Mellon University, told the newspaper of the quest for lower taxes. “You look at the outflow from California, for example,” a state ranked ninth for lifetime taxes in the Self Financial report. “California never used to have outflow.”
The findings of this study are not just numbers but a stark reminder of the significant impact of tax policies on individual financial well-being. As policymakers and economists grapple with tax reform initiatives, the study authors said these insights can serve as a compass, guiding efforts to create more equitable tax systems and alleviate burdens on taxpayers.
The study’s methodology included a comprehensive analysis of income taxes, property taxes, car ownership taxes and everyday expenses. Additionally, the authors said the findings serve as a crucial resource for policymakers, economists and individuals seeking to comprehend the intricate dynamics of taxation and its implications for economic prosperity and financial security.
According to a separate USA Today report, the COVID-19 health crisis allowed many workers to live far from employers. Millions of Americans have migrated from state to state in the pandemic years, untethered from the office by the remote work boom. According to the Census, the number of people who moved between states rose from roughly 7.4 million in 2019 to 8.2 million in 2022.
USA Today further noted that one earmark of a low-tax state is the absence of a state income tax. Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — don’t have one.
Yet, not all those states rate as low-tax destinations in the Self financial analysis. Washington state, for example, has relatively high sales and property taxes, as well as one of the nation’s highest estate taxes.
“Washington state does not have an income tax. So you’re going, ‘Wow, what a great state to move my family,’” Daniel Rahill, a CPA at Wintrust Wealth Management, told the outlet. “Well, Washington has about the highest estate tax. So, when you die, they’re going to make up for it.”
Source: Washington Informer
