States With The Best and Worst Value for Your Tax Dollars
RewardExpert analyzed Census Bureau data to determine the top ten states where residents receive the best value for their tax dollars in government spending on services, infrastructure, education, and public safety.
Taxes are a necessary and unpleasant reality. No one wishes to hand over more of their hard-earned money to the government of their state, city, county, or country than they must. Yet it is all too easy to overlook the fact that the federal, state and local governments use tax revenues in ways that directly or indirectly benefit you, the taxpayer.
Taxes do not disappear into a bureaucratic black hole, but rather help pay for valuable government operated or administered services, and to invest in infrastructure, public safety, and essential social safety-net programs, such as unemployment insurance and workers’ compensation, that tend to get taken for granted by many of us. In order to have lower taxes, citizens must sacrifice some of these, or else pay more in fees and charges, such as highway tolls, tuition at state universities and community colleges, utility bills, and so forth.
The best deal is not always the one that costs least. And so, we analyzed the Census Bureau’s most recent Survey of State and Local Finances, in order to clearly answer the questions: where do you get the most bang for your tax buck? Where do you get the worst return on your investment in your state and local government?
A Note on Method
To accurately rate and rank all fifty states on an even playing field, we needed accurately quantify the value that you receive from governmental spending, in relation to the various taxes and charges paid by you, the taxpayer. To do this, we first calculated how much on average each state spends on each taxpayer, including expenditures on infrastructure and/or services that are partially funded by additional charges (like highways and public utilities), and then calculated the average amount of tax revenue collected from residents on a per capita basis (i.e. excluding corporate income tax revenues).
We then calculated the difference between these two figures, and found that all but one state spends more per capita than it receives in taxes. We expressed this amount in terms of a percentage of the state’s average per capita income, and ranked the states from highest to lowest.
While most of the states that rank in the top ten according to this metric have among the highest per capita expenditures, regardless of whether these are entirely financed by tax funds, the same is true of those at the bottom of our list. Generally speaking, value correlates with the percentage of all government revenues accounted for by taxes: the more the state relies on taxes to fund services, the lower the overall value.
The Top 10 States
With the Best Bang for Your Tax Bucks
Alaska tops our list of states whose residents get the most value for their tax dollars. State and local government expenditures on infrastructure and services exceed tax revenues by nearly 300%, with per capita expenditures surpassing per capita tax revenues by an amount equal to 12.38% of the average Alaskan’s income. This is made possible, on the one hand, by oil and gas revenues, and on the other, by the fact that unlike other states lacking a personal income tax, Alaska does impose an income tax on corporate incomes.
Residents of the state of New Mexico come in second place for most valuable tax dollars. Per capita state and local government spending exceeds tax revenues payable by individual residents at a ratio of nearly 2 to 1; spending $3,395 more per New Mexican than it receives on a per capita basis. This amounts to a return on investment for a resident’s tax bill amounting to 7.46% of the average state resident’s income.
As with Alaska and New Mexico, tax revenue makes up one of the smallest slices of all state and local government revenues (number three, after second-place New Mexico and first-place Alaska), 35.82%. Nevertheless, Wyoming collects enough in sales and property taxes (sixth and seventh-place in per-capita terms) to offset its lack of personal or corporate income taxes. State and local governments in Wyoming are among the top spenders on education and highways over and above revenues generated by tuitions, tolls, and fees, with net benefits accumulating to the taxpayer amounting to a yearly bonus of 5.24% of the average resident’s income.
In fourth-place Kentucky, state and local government spending exceeds tax revenues collected from state residents by $2,079 per capita. Much of Kentucky’s tax revenue is generated through income taxation. Property taxes among the lowest in the country. Kentucky governments modestly outspend modest tax revenues, resulting in great value if not exceptional service.
With notoriously high taxes, New York is an unlikely, surprising addition to our list at number five. State and local governments in New York rank third both in expenditures and in tax revenues, across all tax categorie — including corporate income taxes. With most of the major players in the global economy doing business in New York City, corporate income tax revenues are a significant source of government funding. As such, government spending on items of value to the average taxpayer exceeds per capita tax revenues by an amount equal to 4.72% of the statewide average per capita income. Interestingly, with natural resource revenues in the 50th percentile and associated expenses lower than any other state but Virginia, New York comes the closest to making a profit on natural resources, before taxes paid by energy corporations are taken into account.
Like New York, sixth place Delaware is (legally) home to countless corporate entities, particularly in the city of Wilmington. As a result, Delaware likewise can rely on funds raised by means of corporate income taxes to fund spending in excess of revenues collected from individual taxpayers, who pay less in property taxes per capita than 44 states, and enjoy the benefits of no statewide sales tax.
Like Kentucky and Mississippi, Arkansas state residents benefit from state and local government spending that modestly exceeds relatively low tax revenues. Arkansas government spending places fifth in employment security administration expenditures, and has significantly higher than average public welfare spending.
Eighth place Mississippi makes the cut for the top ten on the strength of its tenth-lowest per capita tax burden on individual taxpayers. Even though Mississippi state and local governments come in close to — or at — dead last in social services, public safety, and employment insurance spending, it comes in fourth in net spending per capita on employment security administration, sewerage infrastructure spending.
Even though Oregonians pay the eighth highest personal income tax per capita, Oregon has an overall per capita tax burden just below the median for the nation, with tax revenues accounting for only 36.01% of all state and local government revenue. This is in part due to the non-existence of a state sales tax, and low alcoholic beverage taxes that are offset by the highly profitable state monopoly on liquor sales (second highest operating profits from state liquor stores). Meanwhile, state and local governments in Oregon invest heavily in parks and recreation facilities (while charging little for use), and has public safety and social services/insurance spending in or around the top quintile nationwide.
Finally, at number ten, we have Vermont closing out our list of states with the best average value returned per tax dollar. Despite paying a relatively large sum in taxes, Vermonters get back more than they pay, with state and local government spending in the top five nationally in categories such as education, highways, public welfare, and public health. Interestingly, the fact that only Vermont’s state and local governments lose money on liquor store sales does not significantly affect personal or public finances in the state.
The Bottom 10 States
With the Worst Value for Your Tax Bucks
Coming in dead last in terms of the value of its residents’ tax dollars is the state of Hawaii, which is the only state whose residents pay more in taxes per capita than state and local governments spend. Negative bang for their bucks, as it were. Revenue collected from individual taxpayers ranks sixth in the nation, while revenue from corporate income taxes ranks 45th. Taxes in Hawaii make up 51.79% of all government revenues (seventh highest in the nation). While government expenditures on infrastructure and facilities is considerable, residents still pay on average more than the value of services received.
North Dakotans pay more per capita in taxes than residents of any other state, coming in second only to residents of the District of Columbia. And while North Dakota state and local governments spend slightly more per capita than per capita tax receipts, this amounts to a paltry 0.11% of the statewide average per capita income. The much-trumpeted Bakken shale boom in North Dakota has been a money-losing proposition for the state. In fact, North Dakota governments spends far more on natural resources than it receives in direct revenues (third-most) or that it makes up indirectly through taxes on corporate incomes. Residents benefit most from high education and highway spending, which are mostly offset by tuitions, tolls and fees, with a hefty tax burden barely sufficient to pay for other government services.
Connecticut is distinguished by its third-highest per capita tax burden, and for its proportion of state and local government revenue made up by taxes, which is second to none at 61.78%. Connecticut residents pay the third-highest amount in property and personal income taxes nationally, and despite average-to-respectable per capita state expenditures on items of value to its tax paying residents, Connecticut residents receive almost exactly what they paid for.
Residents of fourth-from-last-place Nevada pay lower taxes than do residents of Connecticut, North Dakota, and Hawaii, with per capita tax revenues the seventeenth highest in the nation. They also receive for that amount government expenditures that are the eleventh lowest nationwide. Government spending exceeds per capita revenues from taxes paid by individuals by a measly 0.38% of the average income per capita.
New Hampshire lacks both personal and corporate income taxes, as well as a statewide sales tax, resulting in a per capita tax burden that is equal to the median for all fifty states, the bulk of which is from property taxes (amounting to a per capita rate second only to New Jersey and the District of Columbia). New Hampshire’s government expenditures, however, rank thirty-sixth highest among all fifty states. Only sewerage and waste management expenditures rate in the top ten nationwide. State and local governments lean heavily upon liquor store revenues and fees for services in addition to property tax revenue to maintain spending on services and infrastructure that exceeds individual taxpayer revenue by 1.06% of per capita earnings.
Virginians’ total per capita tax burden comes in at 21st in the nation, while its per capita expenditures on taxpayer-beneficial items ranks 35th. Personal income taxes come in at ninth-highest nationwide, at $1,420.01 per capita, while corporate income taxes lag far behind, at fortieth, amounting to $97.56 in revenue per capita. While state government expenditures on various items are generally in in the second and fourth quintiles, it barely exceeds tax revenues collected per capita. Interestingly, with both revenues and expenditures related to natural resources, Virginia comes closer than any state but New York to turning a profit on its natural resources.
Indiana state and local government spends less per capita on public services and infrastructure (much privatized, like the Indiana Tollway) than anywhere across the nation, other than the states of Tennessee and Idaho. Tax revenues collected by Indiana governments amount to over $800 more per capita than in either of these low-spending states, thus diluting their value.
New Jersey’s tax burden is notoriously high, standing at sixth highest per capita tax revenue collected (excluding corporate income taxes), while state and local government expenditures for services and facilities comes in tenth nationally. With the highest property taxes per capita in the nation, coupled with income taxes in the top ten, New Jersey plays second fiddle only to Connecticut when it comes to the share of all government revenue that come from taxes paid into its coffers. New Jersey governments can hardly be considered stingy in terms of spending, especially on transit (seventh), hospitals (eighth), and unemployment insurance (first in the nation). Nor are they shy about charging fees, such as turnpike tolls (which so greatly offsets highway spending that New Jersey’s net highway and parking expenditures are lower than any other state).
Average per capita tax receipts in Colorado barely exceed the national median, while expenditures on items considered of value to resident taxpayers are lower on a per capita basis than two thirds of the states in the nation. While government expenditures outpace per capita tax revenues, especially on items such as unemployment insurance, transit investment, utilities, and parks/recreational facilities, high average per capita incomes in Colorado dilute the value returned on its residents investment in tax payments to local and state government.
The situation in tenth-place Maryland falls into the same pattern and fits into the same mold as New Jersey and Colorado: with the eighth-highest per capita tax revenues and the eleventh-highest per capita public spending, Maryland and its 24 counties can afford to spend big on infrastructure and public safety. But because it raises more than ten times more per capita in individual than corporate income taxes, Maryland’s per capita government spending exceeds tax revenues by only $1,088. Much as is the case for Colorado, this amount would be more than sufficient to lift Maryland out of the bottom ten, if not for the extraordinarily high average per capita incomes of Maryland residents. Were its per capita incomes to be no more than the national median, Colorado would rank 35th, while Maryland would tie for 33rd with Ohio.
RewardExpert used data from the US Census Bureau’s Survey of State and Local Government Finances to calculate the sum total of all expenditures that benefits individual taxpayers, accounting for non-tax fees and charges, and calculated per capita government spending. We then calculated the value of residents’ tax dollars as the difference between per capita spending and per capita tax revenues collected, excluding corporate income taxes. Based on the results, ranked the fifty states (excluding the District of Columbia) according to the amount by which government spending exceeded (or, in one case, fell short of) taxes collected on a per capita basis.
Indicators & Scoring:
- 1) Total tax revenue collected (per capita & gross)
- 2) Corporate income tax revenue
- 3) Selected government expenditure, by category:
- Health & Hospitals
- Employment Security Admin
- Highway & Parking Facilities
- Unemployment & Workers Comp
- Sewer & Waste Management
- Public Welfare
- Police & Fire Protection
- Parks & Recreation
- Cash Assistance Programs
- 4) Fees & Charges for First column above, plus Health & Hospitals and Utilities
- 5) Government assets, securities, and trust funds
- 6) Population and Average Per Capita Income
Survey of State and Local Government Finances, Census Bureau. Most recent Data Released September-October 2017. Previous data set released in 2012. Data set includes state and local revenue/spending both as separate totals and combined. This report utilizes the combined state+local totals to calculate statewide averages.