- - Tuesday, March 24, 2015

ANALYSIS/OPINION:

There’s nothing like a “best and worst” list at tax season to remind a taxpayer that the IRS isn’t the only government revenuer putting on the squeeze. States and cities take a bite, too.

The timing of the list coincides with tax schemes making the rounds of Congress, where Republicans want to curb federal spending by $7.1 trillion and Democrats like President Obama’s spending so much they have come up with a mirror-image proposal, and then some, with $1.8 trillion in tax increases.

Regressive taxes are particularly painful and unfair, because in addition to sales, state and local taxes they hit low- and medium-income households the hardest. The April 15 deadline for filing will have come and gone before Congress reaches a spending deal.

WalletHub, an independent tax-monitoring group, has released its “2015 Best States to be Rich or Poor from a Tax Perspective,” ranking the 50 states and the District of Columbia. To identify the best states to be taxed in, according to a taxpayer’s income group, WalletHub generated estimates of the state-specific tax burden on residents at three income levels — low ($25,000), medium ($50,000) and high ($150,000) — in each of the states, plus the District. Data was taken from the Institute on Taxation & Economic Policy’s 2015 report, which published estimates of tax burdens at seven points in state-specific income distribution.

The D.C. government’s love of everyone else’s money has never been a secret, and WalletHub ranks the District No. 43 taking 9.80 percent of high-earners’ income. New York digs the deepest of all, at No. 51, with a breathtaking 12.40 percent. The District really socks it to the medium-income households, taking 10.16 percent. The less fortunate, but not by much, give up 7.76 percent. The smallest bite was taken in Alaska, with 5.40 percent.

The new mayor, Muriel Bowser, will explain in her first State of the District address how she plans to improve the quality of life for all D.C. families without raising their taxes. We will pay close attention.

Other noteworthy rankings:

Virginia calls itself the state for lovers, and now it claims to be wallet-friendliest on the Beltway, too, with tax burdens for all income brackets lower than in Maryland. In fact, Virginia not only ranks 15th for low-income earners at 8.81 percent, but imposes a smaller tax on residents in the middle bracket (8.80 percent compared to Maryland’s 10.80 percent) and higher-income earners (8.36 percent compared to 10.40 percent).

Alaska calls itself America’s “Last Frontier” and it’s the winner of “best of state” honors for low, medium and high incomes. Tax burdens there are only 5.40 percent, 4.50 percent and 3.43 percent, respectively. Delaware is a close second, with 5.43 percent for low-income taxpayers.

Hawaii, where the Obamas are expected to live after they leave the White House in 2017, ranks in the bottom half of the states in all three income categories: 50th for hitting low incomes really hard with 12.30 percent, and in 48th place with a 10.86 percent take from medium incomes. Property tax rates in Hawaii are barely a third of what they now pay in Illinois. Hawaii’s wealthier homeowners pay 1.26 percent compared to 4.36 percent in Illinois.

The state of Washington earned the 51st spot on overall tax burden between rich and poor, highest for low-income earners and highest sales and excise tax burdens.

The WalletHub analysis poses this question: “What if … a particular state can afford not to tax its residents at high rates because it receives disproportionately more funding from the federal government than states with apparently oppressive tax codes?” The answers are interesting.

New Jersey is the least dependent on Washington, followed by Delaware, Illinois, Minnesota and Kansas. The most dependent on federal money, including contracts and grants, are New Mexico, Mississippi, Kentucky, Alabama and Montana.

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