Where Americans Are Taxed Most

In early April, fears of IRS tax men are warranted, but in many places it's the state government that residents should be worried about.

Take Vermont. It levies the nation's largest tax burden on individuals. Ask anyone living there if the green mountains, popular ski slopes and quaint bed and breakfasts are enough to soften the blow of $3,861 per person kicked up annually to the state government. You'll likely get a lot of "nos."

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Some states are heavy on state income tax, others on property tax and others still on sales tax. Vermont doesn't mess around: sales, property and personal income taxes strike at $1,379, $1,004 and $1,306 per person, respectively.

At least in Hawaii, which ranks No. 2, the state government sticks it to out-of-towners: Property taxes are non-existent there, with the majority of receipts coming from sales tax thanks to a heavily tourist-driven economy. Aloha mainlanders.

Behind Hawaii and in the top five are Connecticut and New Jersey. No surprises there. Northeastern states dominated our list, taking six out of the 10 top spots thanks to high personal incomes and high property tax rates.

Behind the Numbers
The list of most taxed states comes from Census Department figures from from July 2007 to June 2008. We excluded all taxes not borne by individuals, instead including taxes such as: property, individual income, sales, alcoholic beverages, tobacco, motor vehicles, hunting and fishing, motor fuels, death and gift taxes, as well as insurance premiums. Adding up total receipts and then dividing by the number of citizens, we arrived at our tax-burden-per-person metric.

The fiscal year 2008 was a good one for state governments. Taxes on individual income totaled $280 billion nationwide, up 5.1% from the year prior. Of that boon, $36.5 billion came from New York and $12.4 billion came from Massachusetts. Drill down to the per-person level, and that's $1,876 and $1,925 respectively.

But income tax isn't the only way state governments hit their constituents. Wyoming has no state income tax, and has relatively small property taxes ($526 per year). Still, the state draws 70% of it's tax revenue, or $1,658 per person, on individual tax receipts at the checkout counter.

Of course, with the way the economy trended in 2008, state governments don't have a chance at another uptick for this collection season. According to the U.S. Labor Department, 2.6 million jobs evaporated in 2008. Consumer spending--which drives sales tax receipts--accounts for two-thirds of economic activity in the U.S. according to the Commerce Department. In the fourth quarter of 2008, consumer spending dropped by 4.3%, the steepest drop since 1980. Spending has edged up in February and March, according to the Commerce Department, but is still short of third-quarter 2008 levels.

What's more, the U.S. normally runs a negative savings rate, which means consumers spend more than they have and live off credit. Now, with the economy cratering, Americans are stashing their cash and have boosted the savings rate to 5%, according to the Commerce Department, the highest rate in 13 years. That's bad news for state governments, as money being saved instead of spent cannot be taxed.

With less money coming in, and less to do, maybe that means tax men will be America's next round of mass layoffs, a cause for which citizens are unlikely to support a bailout.

© 2009