The two spreadsheets attached to this post have data on state and local taxes, as provided by the Governments Division of the U.S. Census Bureau. The “all state and county” spreadsheet has FY 2007 data for the U.S., each state, every county in New York State, and different areas of the state aggregated together. State taxes and local taxes, and major tax types, are identified separately. It prints as a four-page table. The “all years” spreadsheet has data on the total state and local tax burden for the U.S., New York City, the rest of New York State, New Jersey, Connecticut, Massachusetts, Illinois, California, Texas and North Carolina. The data is for FY 1972, and FY 1977 to FY 2008 excluding years when Census Bureau budget cuts meant no data was collected (FY 2001 and FY2003).
Per capita state and local tax data is sometimes used to identify Massachusetts, New Jersey and California as “high tax” states. But this ignores the higher average incomes in those states, and thus the higher cost of living, the greater ability to pay taxes, and the need to pay public employees more if they are to be paid as much as their neighbors doing similar work. This data presents taxes as a share of the personal income of U.S., state and area residents (as provided by the U.S. Bureau of Economic Analysis), and thus adjusts for the ability to pay and the cost of living. When the data is presented this way, two facts stand out. In reality New York is the only true “high tax” state. And deferring taxes, by running up debts, not funding pensions, and not maintaining infrastructure, is not the same as cutting them.
A couple of more points about how the data was compiled. Within New York State, the burden of state taxes is allocated to different counties and areas of the state in proportion to personal income. In FY 2007, for example, state taxes consumed 6.8% of the personal income of New York State residents (the national average was 6.4%). In tabulating the state plus local tax burden for New York City, the Downstate Suburbs, Upstate Urban counties and Upstate Rural counties, the tables assume that the burden of state taxes is 6.8% of income in all those places. In reality there is a set of state taxes that is only collected Downstate – the “dedicated” Metropolitan Transit Authority taxes. As that supposedly “dedicated” money has been raided and used for statewide, non-transportation needs, it is clear that downstaters, even less well off downstaters, have a higher state tax burden that upstaters, so bear that in mind.
When comparing the tax burden in individual upstate counties as a share of personal income of county residents, one should also remember that in many cases second homeowners rather than county residents are bearing a large share of the burden. Where available (all but two counties), the percentage of housing units that are second homes is provided in the table, based on American Community Survey data. For upstate rural counties as a whole the figure is 11.8%; the highest share is in Sullivan County in the Catskills at 33.8%.
On the other hand, rural counties provide fewer public services than urban ones. Many areas of the state have volunteer rather than professional fire departments, and solid waste collection that one has to pay for in a fee. And in New York City for most of the past 40 years the most expensive public service, elementary and secondary school, has only been available to some of the city’s children, with the rest receiving babysitting of greater or lesser value.
Let’s start with the tables for FY 2007, and with the U.S. On average state and local taxes absorbed 10.8% of the personal income of state residents, with 6.4% for state taxes and 4.4% for local taxes. At the state level, the leading sources of revenue were sales taxes (3.0% of personal income) and individual income taxes (2.2% of personal income). At the local level, property taxes were the dominant at 3.2% of personal income.
Among states, most fall within 2.0 percentage points of the average, with a total tax burden at 8.8% to 12.8% of personal income. Let’s call states more than 1.0% out from the mean “above average” and “below average” tax states, with those in between “near average.” There are 33 states out of 50 that are within 1.0 percentage points of average. Vermont, Hawaii and Maine are above average at 12.4% to 12.5% of personal income. Alabama, Tennessee, Colorado, Missouri, Texas, Oklahoma, Oregon, Idaho and Virginia are below average, with tax burdens running from 8.9% to 9.7% of personal income.
There are only a handful of real outliers, but most of them have exceptional circumstances. South Dakota’s state and local taxes were very low at 8.2% of personal income in FY 2007, but personal income in that low population state tends to vary widely from year to year with changes in crop prices and federal farming subsidies: in 2007 personal income jumped 9.2%, pushing down taxes as a share of personal income. New Hampshire taxes are also exceptionally low at 8.4% of state residents’ personal income.
Taxes were high and sky high as a percentage of personal income in Wyoming and Alaska in FY 2007, at 13.3% and 17.6% of personal income. These, however, are also states with low populations – and extensive mining. As it happens in FY 2007 oil, gas, coal and other mineral prices were high, and most of the taxes collected by these states were on the extraction of these resources. In Alaska, for example, there is no personal income tax, little in state and local sales taxes, and below average property taxes. Corporations and taxes on oil extraction provide almost all the revenues, not state residents and other businesses. Residents, in fact, are sent a check by the state. These states also get extensive federal funding relative to their federal tax burden. Perhaps their unique characteristics explains the post-1980 ideology of the Republican Party of Sarah Palin and Dick Cheney. Against big government for “them,” but in favor of government spending without limits on “us,” low taxes for us, and money coming from…whatever. It works in two places.
The state and local tax burden is also outlier-high in the District of Columbia, at 13.8% of personal income. Then there is New York State at 14.5% of personal income overall. Within New York State, the burden is an astounding 15.9% of personal income for New York City, 13.7% and 13.4% of personal income in the Downstate Suburbs and rural upstate counties, and 12.7% of income in upstate urban counties. Within New York State, only the upstate urban counties would qualify as merely “above average” rather than really outlier high in the classification I have suggested. In fact if you discount Alaska, Wyoming, and Washington DC as special cases not comparable with other places, then New York may be considered the only true high tax state.
New York’s taxes are high across the board. The state’s personal income tax burden, at 3.7% of personal income, is far above the national average of 2.2%, though the gap is not as large if states without personal income taxes are excluded. While New York’s state sales tax burden, at 2.1% of personal income, is below the U.S. average of 3.0%, that is only because New York collects extensive sales taxes at the local level – at 1.4% of personal income – and most states do not.
Similarly, New York City’s property tax burden, at 3.1% of personal income, was below the U.S. average of 3.2% only because of the city’s virtually unique local personal income – 1.9% of income on top of the New York State income tax. With high taxes overall (though not so high as in New York City) but no local income tax, property taxes are very high in other parts of the state – at 5.4% of personal income in the Downstate Suburbs, 4.9% in upstate rural counties, and 4.2% in upstate urban counties. The local property tax burden was 4.9% in New Jersey and 4.2% in Connecticut.
Examining individual New York State counties, the lowest tax burden at 11.1% of personal income was in Jefferson County (Watertown). (In past Census of Governments it had been Chemung County (Elmira)). The tax burden is extremely high in rural counties with low resident incomes and many second homeowners. While I don’t have the second home percent for Hamilton County in the Adirondacks, I would assume that its residents are not in fact paying 28.5% of their personal incomes in state and local taxes, though it may be that the taxes on residents are in fact quite high there.
Next look at the chart. New York’s state and local tax burden has always been far about the U.S. average and other states as a percent of its residents’ personal income, but the burden of those taxes and the percent above average has varied from year to year.
In the 1970s fiscal crisis, with the personal income of New York City residents falling and the city buried under the debts and rich pensions from the past, the state and local tax burden soared to 57.6% higher than the national average FY 1977. It had fallen to 47.5% above the U.S. average in FY 1994, before the Giuliani and Pataki administrations slashed taxes. To get taxes down, in addition to targeting budget cuts to poor city residents and the city’s public school, these administrations also stated borrowing money and deferring pension costs to the future. The tax burden fell below 40.0% above the U.S. average and stayed there until the early 2000s. The low point was 35.3% above the U.S. average in FY 1997 when, if New York City had been a separate state, its public school spending as a share of personal income would have been the second lowest in the country.
More recently, New York City’s state and local tax burden has been soaring as the bills deferred from the Giuliani/Pataki era began to come due. In FY 2008, before the MTA payroll tax, the “millionaire” state income tax increase, the broadening of the sales tax base, and the property tax increase, New York City’s state and local tax burden had risen to 45.6% above the national average. It is presumably still going up.
The state and local tax burden in the rest of New York State, taken together, has tended to follow the same ups and downs as New York City, while always remaining lower. The burden had been 32.4% above the U.S. average as a share of personal income in FY 1977, and fell to a low of 22.9% above average in 2000. It has since increased, though not as dramatically as in New York City, and was 23.7% above the U.S. average in FY 2008. That is because the rest of the state didn’t take on as much debt as New York City, and it had not yet begun to pay for past pension underfunding and pension enrichments passed by the state legislature as of FY 2008.
The chart visually shows all the other states relatively close by the U.S. average in recent years, with Illinois, Massachusetts, Texas and North Carolina somewhat below average and California, New Jersey and Connecticut somewhat above. New York City and the rest of New York State are off by themselves, far higher.
California and Massachusetts were also outliers on the high side in the 1970, before limitations on local property taxes brought their overall tax burdens down. California’s public school spending as a percent of personal income fell to one of the lowest in the U.S. in the 1990s, when the state’s total tax burden was below average. In recent years California’s school spending, as a share of its residents’ personal income, has since risen closer to the national average, but its taxes are once again above average. As discussed in my posts on state and local finance and the future here and here, Massachusetts has the most sold out future among the stats, based on its debts, pensions, and past infrastructure investment (or lack thereof other than the Big Dig). It’s tax burden remains below the U.S. average for now. Illinois tax burden is also below average, but that state has not funded its public employee pensions. Does Illinois deserve a bailout, or need to raise taxes? If any of these states had taxes at New York levels, their fiscal problems would go away – unless their economy went away too.
Having been below average until 1990, the state and local tax burden as a percent of personal income has been at or above average in New Jersey and Connecticut ever since. These states benefit from having relatively few poor people, and thus low social service burdens, and relatively rich populations to pay taxes. Even so, both ran up debts and didn’t pay required public employee pension contributions in the 1990s to get their tax burdens down, just like New York. New Jersey and Connecticut were at the U.S. average in state and local taxes as a percent of personal income in FY 2002, but also ended up left with places in the top eight in my “sold out future ranking,” along with Illinois and Massachusetts. The tax burden has since risen in both New Jersey and Connecticut. It either will explode, or public services will collapse, as in New York.
Which brings one back to a discussion of New York’s high taxes. Many states and cities are facing a fiscal crisis, but most could solve it by raising their taxes and still have tax burdens far below those of New York. And while many New Yorkers have been willing to pay higher taxes in exchange for the promise of more services and benefits for the needy, but how will they feel when those promises are broken, in New York City yet again, as taxes rise further and services and benefits are cut? All to pay for debts and pension enhancements enacted by the state legislature that New Yorkers didn’t even know about?
Already leaders of public employee unions are making announcements about what their members are no longer obligated to do for the rest of us, even as most of the rest of us become poorer relative to them. The police and fire departments won’t protect us. The sanitation department won’t clean up after snowstorms. The state Department of Environmental Protection, where many workers retired years earlier under a deal cut with Governor Paterson when he was still seeking re-election, now says it won’t have enough people to provide recreation programs next year. The retirees took the money and went to Florida early, and those left behind are under no obligation to make up for the added people being paid longer not to work.
And what will calls for “shared sacrifices” mean when the retirees who benefitted from the taxes that were deferred, not cut, in the past, don’t pay any state and local income taxes on their retirement income at all. Or move to Florida, laughing all the way? While those left behind and working pay more for less, while working harder to satisfy those with the option to take their business elsewhere?
We have the highest state and local tax burden in the U.S. Any discussion of public services and benefits starts with that. If we don’t have the best public services in the country, the best and most up to date infrastructure, and needy people sufficiently well cared for to move out of neediness, then we’ve been robbed. The only question is, by whom. And if we are being robbed by someone not putting enough in, that doesn’t mean there isn’t enough being paid in the aggregate, only that some are being robbed more than others.