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Financial Literacy

Financial Literacy

State Taxes

Income Tax

Forty-three states impose some level of income tax in addition to the federal income tax. Of the states that do impose income taxes, the highest is California, where the top marginal tax rate is 10.3%. (Looks like sunshine and tofu don’t come cheap). Income taxes at the state level are paid out in a fashion almost identical to the federal system, with a state tax form due April 15. If you are reading this on April 15th, you may even be able to hear your parents screaming in the background, as they realize what day it is.

Corporate Tax

Just like the federal government, all states also impose corporate taxes on entities which operate in their state. These are taxes on the profits of corporations and typically vary depending on a corporation’s profitability. In 2008, corporate tax rates were as low as 1% in Arkansas and Alaska and as high as 9.975% in the District of Colombia (seems like “the district” is trying to overcompensate for something).

Sales Tax

The sales tax is the tax that all of us are most familiar with and the one which we pay most frequently. Sales tax is simply a consumption tax based on the value of a good. However, many times necessity items such as food are exempt from sales tax. A sales tax requires merchants who sell goods to serve as tax collectors for the government.

Unlike most taxes, the sales tax is imposed solely at the discretion of states and municipalities – in fact, some states don’t have any sales tax at all! On the other hand, there are states like California, where in some counties the sales tax is as high as 9.25%. But, on the other hand, you’ll have significantly fewer celeb sightings in Montana. So… pick your poison.

Excise Taxes

Most states impose taxes in addition to sales tax for many purchased items. These excises are often found on gas, cigarettes, alcohol, as well as many other items. Excises serve as a way for the government to change the incentives of individuals while also generating revenue for the state. It’s almost like they don’t want you to destroy the environment with gas emissions while you’re going for a drunken, smoke-filled joyride. 

State Budget Allocations (5 Examples)

California

With the highest sales and income tax in the nation, California certainly rakes in quite a bit from its citizens. However, even with those two severe taxes, Cali only ranks 11th in per capita taxation..

What does California do with all of its cash? For starters, California spends a relatively high amount on pensions and protection. It has the largest public sector of any state in the union and provides ample benefits for those employees in the form of a pension retirement plan, which makes up that entire section of their budget. Might explain why there are so many happy old people living there.

Half of the protection portion of the California state budget goes toward the care of its 180,000-person prison population (that’s quite a few mouths to feed). That many prisoners will certainly take a tremendous bite out of any state budget. And knowing them, they will probably first smother it with mayonnaise and relish.

Wyoming

Surprisingly for a state with no income tax, Wyoming has the 4th most burdensome tax per capita in the US. Of that revenue, the state of Wyoming spends over 16% on transportation, which may seem unusual for a state with no extensive public transportation systems. But even though highways are paid for in part with federal tax dollars, the remaining roads in Wyoming (and every other state for that matter) are paid for by state and local governments. Being the least populous state in the union (different from the “least popular”; Wyoming was actually voted Most Likely to Marry a Supermodel back in high school), Wyoming has quite a bit of road per person, which leads to disproportionately high transportation spending.

New York

New York lives up to its reputation of being a tax-heavy state. It is the 9th highest taxing state in the nation. Most people will tell you that it’s pretty taxing to live there.

However, unlike the previous large state we profiled (California), New York spends over a third of its revenues on health care alone. It makes sense if you think about it - there are a lot of stab wounds to attend to. A third is huge when you consider that health care is the third-largest expenditure of the national government, and all of that money spent obviously goes to people who live in states. In fact, the state of New York spends over three times as much money on public welfare health coverage as it does on education. Which is a shame, because there are probably plenty of residents who could benefit from an anti-stabbing elective.

Also unlike Wyoming, New York spends a relatively small percentage of its budget on transportation, despite having one of the most extensive public transportation systems in the United States. There are many more New Yorkers per road and subway car, which allows the state to provide ample transportation without taking a huge chunk out of the state budget. And for anyone who has ever ridden the New York subway system, it is clear to see where the money is not going.

Ohio

Ohioans must be happy; their state has one of the lowest tax burdens per person in the entire nation. Ohio gathers over 70% of its revenue from sales and income tax alone. Of the states profiled, Ohio is the only one which spends over half of its budget on health care and pensions. The majority of those allocations go toward public welfare, health services, and employee retirement benefits.

Ohio also spends a relatively large portion of its budget on education. Because primary and secondary education is paid for on a local level, almost all of this education spending goes to fund Ohio’s many public universities. Lot of smart, healthy people in Ohio. Which begs the question… Ohio?

Mississippi

Although not the lowest, Mississippi certainly doesn’t rank high on the taxation per person scale. Of the taxes that the state does collect, nearly half come from sales taxes alone. Being a less populous state, Mississippi is able to spend less money on protection than many of the larger states we have previously profiled. Mississippi also spends a relatively large amount on its public universities, the construction of its highway systems, and cheesy grits.

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