2021 Tax Burden by State & Tax Facts – WalletHub Study

The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.

Individual income taxes and payroll taxes make up a large share of tax revenue in the United States and together comprise the tax burden on labor. The U.S. tax code is progressive, combining a highly progressive individual income tax with a more regressive payroll tax. While the U.S. code is progressive, the average worker is burdened by taxes. Due to provisions in the tax code that benefit families, the tax burden on families is often lower than the burden on single, childless workers earning an equivalent pretax income.

With Tax Day delayed to May 17 due to the impact of the COVID-19 pandemic, the personal-finance website WalletHub today released its 2021 Tax Burden by State report.

In order to determine which states tax their residents most aggressively, they compared the 50 states based on the three components of state tax burden — property taxes, individual income taxes, and sales and excise taxes — as a share of total personal income.

Key Stats – Tax Facts Infographic

• 79% of Americans don’t know if they’ll owe income taxes on their stimulus checks (they won’t).
• Americans spend 8 billion hours doing taxes each year. The average person spends 12 hours and $230 completing their 1040.
• 90% of tax returns are expected to be filed electronically. The average refund in 2021 is $3,021, as of 2/26/2021.
• 30% of people say making a math mistake is their biggest Tax Day fear, and 29% worry most about not having enough money. That edges out identity theft (22%) and getting audited (19%).
• 38% of Americans would move to a different country and 27% would get an “IRS” tattoo for a tax-free future.
• 50% of people would rather do jury duty than their taxes. 1 in 4 would prefer talking to their kids about sex. More than 10% would swim with sharks, spend the night in jail and drink expired milk.

WalletHub Q & A

What state and local tax instruments are most fair? Least fair?

“In 2018, total State and Local Government Tax Revenues were comprised of these sources, at these respective percentages of the tax revenue collected: (1) sales and gross receipts taxes (35%); property taxes (31%); individual income taxes (24%), and other taxes (10%). U.S. Census Bureau, 2018 Annual Survey of State and Local Government Finances,” said Wilton B. Hyman, New England Law | Boston.

“On average, state and local tax systems are regressive because lower-income taxpayers pay a higher effective tax rate than middle- and higher-income taxpayers. ITEP, “Who Pays?: A Distributional Analysis of the Tax Systems in All 50 States,” 1, 6th ed., October 2018.”

What is the relationship between state tax burden and economic growth?

“If there is a relationship, it is definitely not one-to-one,” said Roberta Mann, University of Oregon School of Law. “That is, states with a low tax burden do not always show higher rates of economic growth than states with high tax burdens. Nevada has a relatively low tax burden (ranked 4 in the Wallet Hub survey) and the highest growth in GDP in the 3d quarter of 2020 according to the Bureau of Economic Analysis (BEA). On the other hand, Vermont and New Hampshire also have high rates of growth in GDP, but also quite high tax burdens. Wisconsin and Michigan show high rates of GDP growth and have even higher average tax burdens than Vermont and New Hampshire.”

Should states and localities tax property at different marginal rates like income?

“For the reasons discussed in my answer to the first question, this could be a good idea if the property tax in a certain jurisdiction is judged to be regressive,” said Phillip Cary Christian, PhD, Georgia Southern University. “However, due to the passthrough of property taxes paid by landlords to their renters (not specifically passed through but included in the form of a higher rent to recover property tax expense), this might actually result in the poor being effectively taxed more heavily. Also, most jurisdictions handle this by taxing commercial and industrial property at higher rates to help keep residential property tax rates lower. Where this is feasible (because commercial and industrial property exists in the jurisdiction) it is likely preferable to different marginal rates on residential property.”

What makes some state and local tax systems better able to weather economic downturns?

“The degree of impact and when it occurs will vary for different types of taxes in an economic downturn,” said Annette Nellen, CPA, Esq., San José State University. “If people are losing their jobs, the income tax is immediately affected. Sales tax is likely impacted a bit more slowly when people reduce non-necessity purchases (such as furniture and clothes). Property taxes might be affected last. Most states have a mix of taxes to alleviate this impact and provide a tax base that can best weather economic downturns and pandemic and other disasters. States need to have rainy day funds to help even out ups and downs and have an effective system for maintaining and restoring these funds too.”

To view the full report and your state’s rank, please visit:

https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494

Courtesy: WalletHub