Visually Comparing State Income Taxes

[maizefolk]

Attempts to compare income taxes across states often end up looking something like this: http://taxfoundation.org/blog/top-state-income-tax-rates-2014 (a map showing the top marginal income tax rates per state). Of course different states income taxes max out at wildly different levels. For example, Iowa and New York have similar top marginal tax rates (8.98% and 8.82% respectively) however New York's top rate doesn't kick in until $1M/year while Iowans are already paying their top marginal rate at $70k/year so that map really isn't all that informative. So here is my my attempt at converting state income tax bracket data* in a form that makes visual sense.

Here we visualize the patterns of marginal income tax across states for incomes between $0 and $100,000 per year in units of $5,000.** States with similar income tax structures are clustered together, which makes it a little harder to find your state, but a lot easier to identify states with similar income tax levels once you do.


Here we visualize the patterns of marginal income tax across states for incomes between $0 and $250,000 per year in units of $10,000


*Data is from 2015. Does not consider differences in deductions or what income is subject to tax between states. Does not consider city income taxes (as imposed, for example, by St. Louis and NYC). Tax brackets for married people are often different.

**Edit #2: Data for New Hampshire and Tennessee are misleading. My data source for tax brackets across the various states had tax rates for those two states which only apply to interest and dividends. Thanks to @rubic below for pointing this out.

Edit: decreased "width" tag values so the right hand side of the images is no longer cropped.

[With This Herring]

That is beautiful and depressing.  Thank you.

[tarheeldan]

Thanks for sharing!

[johnny847]

Your label is confusing. You make it seem like the Y axis is marginal income tax rate, when you are labelling the colors as marginal income tax rate and the Y axis is actually income.

Otherwise, this is pretty cool!

[maizefolk]

@johnny847 Arg! In preview the whole image showed up, but the far right hand side was getting cropped when actually posted to the thread. I've shrunk the size of the images some more so the real y-axis label should be visible now. That doesn't fix the fact that the label for the color key looks like it could apply to either the key or the figure but should compensate to some extent.

[sol]

For those of us who live in zero income tax states, we pay through the nose for property taxes and/or sales taxes instead.  This is great work you've done, but I'd be even more interested in a similar analysis for property taxes.

[brooklynmoney]

Yeah the city tax we pay in NYC has to make us one of the highest for state and local taxes. And then you know what happens when you pay a ton of those taxes? It triggers the AMT making tax time even more fun!

[maizefolk]

For those of us who live in zero income tax states, we pay through the nose for property taxes and/or sales taxes instead.  This is great work you've done, but I'd be even more interested in a similar analysis for property taxes.

I guess the X-factor with property taxes is that you need to consider both variation in property tax as a percentage of value among states and variation in average cost of housing among states. I'd much rather be paying the Michigan average of 1.78% on a $150k house in the UP than the California average 0.81% of the value of a $1M house/condo in San Francisco. I'm not sure how to deal with that yet -- or what datasets are available online -- but it's an interesting challenge.

While there are no free lunches and the money to provide government services obviously has to come from somewhere, there do appear to be some opportunities for at least reduced price lunches. Take Nebraska and Colorado, two adjacent states. Colorado imposes a flat 4.63% tax on income. Nebraska has a somewhat progressive income tax rate, but the marginal rate exceeds COs at $17,501/year and absolute tax bill exceeds COs at ~$35,000. Yet, Colorado's effective property tax is only 1/3 of Nebraska's (0.61% vs 1.84%), and the difference in sales taxes between the two states doesn't seem big enough to make up for the other two differences: Colorado's population weighted average of state and local sales taxes is 7.39% while Nebraska's is 6.79%. Maybe the average house in Colorado is 3x as expensive as Nebraska?

[maizefolk]

Yeah the city tax we pay in NYC has to make us one of the highest for state and local taxes. And then you know what happens when you pay a ton of those taxes? It triggers the AMT making tax time even more fun!

I knew NYC had its own income tax, I didn't realize how high it was until your comment made me look it up. St. Louis charges a flat 1% of income if you either live or work within the city limits and when I heard people talk about the city tax in New York I assumed it was similar.

A person living in NYC would only need to make $25k (after deductions) to hit a total marginal tax rate of ~33%* (15% Federal Income Tax, 6.45% NY state income tax, 3.591% NY city income tax, 1.45% medicare, and 6.2% social security.) That's... impressive.

*This is an extremely sloppy back of the envelope calculation. Various taxes act as deductions for other taxes (at least until that dreaded AMT kicks in) would would make the real marginal rate lower than this.

[dragoncar]

For those of us who live in zero income tax states, we pay through the nose for property taxes and/or sales taxes instead.  This is great work you've done, but I'd be even more interested in a similar analysis for property taxes.

Definitely, total tax burden is more interesting.  Include sales tax too! 

I found this, but it's in annoying slideshow format: http://www.forbes.com/pictures/emeg45efhjf/introduction/

[Rubic]

There is no state income tax in Tennessee, except for taxable interest/dividend income > $1250/person.

  https://en.wikipedia.org/wiki/Hall_income_tax

This accounts for < 2% of state tax collections.

Edit:  The graph indicates a 6% income tax in Tennessee, which is misleading.

[maizefolk]

There is no state income tax in Tennessee, except for taxable interest/dividend income > $1250/person.

  https://en.wikipedia.org/wiki/Hall_income_tax

This accounts for < 2% of state tax collections.

Edit:  The graph indicates a 6% income tax in Tennessee, which is misleading.

Good point. I pulled my raw data from here http://taxfoundation.org/article/state-individual-income-tax-rates-and-brackets-2015 but I see now they have a footnote about the fact that the tax brackets they have listed for Tennessee  and New Hampshire only apply to interest and dividends. I agree, those shouldn't properly be lumped in with normal income taxes.

[seattlecyclone]

For those of us who live in zero income tax states, we pay through the nose for property taxes and/or sales taxes instead.

This system is very favorable to those of us with above-average incomes and below-average consumption.

Also I don't think our property taxes are really that high here in Washington. My parents live in the Midwest, in one of the states with mostly orange and red in the income tax visualizations above. They pay more property tax than I do, both in percentage of assessed value and in total dollars. They do have a bigger house than me, making my property tax a bit higher per square foot. Still, my total tax burden here in Washington is likely less than my income tax alone would be in many other states, states which also have property and sales taxes of their own.

[K-ice]

Nice.

This would be good to do in Canada & a lot of other countries including the federal tax too. Unfortunately, the color maps for Canadian provinces would need to start at about 5% and climb to over 25%.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

[Vilgan]

For those of us who live in zero income tax states, we pay through the nose for property taxes and/or sales taxes instead.

This system is very favorable to those of us with above-average incomes and below-average consumption.

Also I don't think our property taxes are really that high here in Washington. My parents live in the Midwest, in one of the states with mostly orange and red in the income tax visualizations above. They pay more property tax than I do, both in percentage of assessed value and in total dollars. They do have a bigger house than me, making my property tax a bit higher per square foot. Still, my total tax burden here in Washington is likely less than my income tax alone would be in many other states, states which also have property and sales taxes of their own.

Yeah, Washington is incredibly nice for high earners. No income tax, the sales tax only applies to consumption, and property tax is a bit high but not bad considering the lack of income tax. The effective property tax rate in King County is 1.01% which seems reasonable. Most of the tax comes from B&O which can be rough on businesses - but they can just roll it into the cost of doing business so its fairly invisible to the average resident.

[Bracken_Joy]

Ha. Oregon here. I'm just gonna go and sob over my paystubs. And have someone else pump my gas for me while I do it.

[rugorak]

I really wish they would split out NYC and Yonkers from the rest of NY state. It is quite a bit different upstate than down. I think Syracuse and Buffalo have been near the top of the metro area affordability lists a number of times. Especially for home ownership. Property taxes vary from county to county and school district to school district. I am sure it is similar in lots of areas but I would imagine it is most pronounced in NY than any other state. Hell even outside of NYC I have an example. My sister is way out on Long Island. For what she paid for her house (which she got for an insanely low price in her local market due to it being a short sale) I can get a slightly bigger house with 10 acres to her 1/2 for about half the price. And the house would be move in ready where she had to do a lot of work before they could move in.

[K-ice]

I always find marginal tax rate misleading compared to average (or actual) tax rate.

With the new tax rules proposed by Trudeau if my income was over $200K (it's not) my marginal tax rate would be 33%.

However, my actual tax rate would be about 23%

Here is where I got my numbers:
http://business.financialpost.com/personal-finance/how-most-canadians-will-be-left-out-in-the-cold-by-trudeaus-proposed-tax-cut


For someone making $100K the marginal rate is 26% but the actual rate is 17%.

This doesn't even take into account any tax deductions strategies.


The concept of "Oh no, I don't want to jump into a higher tax bracket" is so misleading.

[maizefolk]

I always find marginal tax rate misleading compared to average (or actual) tax rate.

Agreed. Assuming equal marginal rates and incomes, a people living in a state (/province) with a strongly progressive tax program is going to pay a whole lot less than a person in a state (/province) with something closer to a flat tax.  Hopefully people can still get some of that sort of information from looking at how rapidly colors change moving up in income (for example at 50k/year it looks like California taxes would take a much smaller bite out of ones paycheck than Idaho taxes, even though your marginal rate would be higher in CA).

Marginal taxes come into play in a big way when explaining why effort invested in decreasing your spending tends to have a much bigger payoff than trying to increase your salary.

The concept of "Oh no, I don't want to jump into a higher tax bracket" is so misleading.

This is a huge pet peeve of mine too. Lots of people don't actually understand how marginal tax brackets work in the first place. As long as the tax rate is below 100%, making more money is better than making less money.

[BigRed]

Thanks for this visualization, it's pretty neat to see and a great lesson in good visualization of complicated data.

[K-ice]

Thanks for this visualization, it's pretty neat to see and a great lesson in good visualization of complicated data.

+1

[2lazy2retire]

Attempts to compare income taxes across states often end up looking something like this: http://taxfoundation.org/blog/top-state-income-tax-rates-2014 (a map showing the top marginal income tax rates per state). Of course different states income taxes max out at wildly different levels. For example, Iowa and New York have similar top marginal tax rates (8.98% and 8.82% respectively) however New York's top rate doesn't kick in until $1M/year while Iowans are already paying their top marginal rate at $70k/year so that map really isn't all that informative. So here is my my attempt at converting state income tax bracket data* in a form that makes visual sense.

Here we visualize the patterns of marginal income tax across states for incomes between $0 and $100,000 per year in units of $5,000.** States with similar income tax structures are clustered together, which makes it a little harder to find your state, but a lot easier to identify states with similar income tax levels once you do.


Here we visualize the patterns of marginal income tax across states for incomes between $0 and $250,000 per year in units of $10,000


*Data is from 2015. Does not consider differences in deductions or what income is subject to tax between states. Does not consider city income taxes (as imposed, for example, by St. Louis and NYC). Tax brackets for married people are often different.

**Edit #2: Data for New Hampshire and Tennessee are misleading. My data source for tax brackets across the various states had tax rates for those two states which only apply to interest and dividends. Thanks to @rubic below for pointing this out.

Edit: decreased "width" tag values so the right hand side of the images is no longer cropped.

Is it best to drop some acid when looking at this ?

[leighb]

Ha. Oregon here. I'm just gonna go and sob over my paystubs. And have someone else pump my gas for me while I do it.

but no sales tax...

[Bracken_Joy]

Ha. Oregon here. I'm just gonna go and sob over my paystubs. And have someone else pump my gas for me while I do it.

but no sales tax...

True, but that isn't an balance that works out well for an "accumulation" mustachian. I save on spending but I spend on saving.

[Vilgan]

Ha. Oregon here. I'm just gonna go and sob over my paystubs. And have someone else pump my gas for me while I do it.

but no sales tax...

Yeah, sales tax isn't a big deal for mustachians. The nearly 10% sales tax in Seattle doesn't impact groceries, so very little of my monthly spending is affected by sales tax.

[seattlecyclone]

Ha. Oregon here. I'm just gonna go and sob over my paystubs. And have someone else pump my gas for me while I do it.

but no sales tax...

Yeah, sales tax isn't a big deal for mustachians. The nearly 10% sales tax in Seattle doesn't impact groceries, so very little of my monthly spending is affected by sales tax.

Indeed. The best part is when the federal government allows you to take an itemized deduction for sales tax and the IRS comes up with a completely anti-Mustachian baseline of how much you can deduct if you don't want to bother with saving all of your receipts. For example it assumes a married couple earning $100k in Seattle could deduct $1,663 last year. That's equivalent to spending $17,500 on stuff that is subject to sales tax. Remember that rent/mortgage, groceries, gasoline, insurance, most utilities, and some other stuff doesn't have sales tax, so you're mostly just paying this tax on completely frivolous stuff like eating out or gadgets or whatever. Also if you buy certain big-ticket items (car, home renovation), you can add the actual sales tax you pay on this stuff to the standard amount.

Assuming the IRS gets their numbers from some sort of representative average, the average American wastes a ton of money!