As opposed to many countries in the world, the United States have a fairly complicated tax system. In addition to paying federal taxes – usually the only taxes in most nations, – there are many taxes that are imposed by state and local governments. Some taxes are imposed on one juridical level, other taxes are imposed on several levels and these taxes do not offset each other. For example, sales taxes are under jurisdiction of both states and local governments, whereas custom duties and exporting tariffs are imposed exclusively by the federal government.
Obviously, such tax system varying from locale to locale makes some states more attractive for its citizens, investments or particular business activities. For example, the online survey conducted among 1,086 individuals has revealed that, according to subjective opinion of Americans, Montana is the state with the fairest state/local tax. It was followed by Oregon and South Carolina. On the other hand, the state with the least fair tax system is found to be Washington. The second and the third places in the list of the least fair taxations belong to Georgia and Hawaii, respectively. The full results of this survey can be found by the link https://wallethub.com/edu/most-least-fair-tax-systems/6598/.
The survey also found that Wyoming, Nevada and Florida are the states where tax rates are the lowest for the top 1% of income earners. So, these states can be thought as the most attractive places of earning and living, provided that you are rich. Using the same metrics for assessing living attractiveness for middle class earners, we may deduce that Arkansas, New York and Mississippi lead the chart. Finally, the poorest (bottom 20% of income distribution) might find preferable to live in such states as Washington, Hawaii and Illinois.
In my opinion, this taxation gap across states has extremely strong implications for the economy. Apart from the already mentioned possible inter-state migration among people with particular levels of income, this taxation gap may also give rise to the so called industrial clustering. For example, it is well known that California and in particular Palo Alto has become a strong industrial center in the development of high tech production. There are multiple explanations behind this phenomenon. The state has banned a number of corporate taxes in the Silicon Valley and has levied no taxes onto small businesses since 1993, thus encouraging creation of start-ups. So, such taxation gap can directly affect the geographical location of industries across the US map. Pursuing tax benefits, new businesses will strive to be registered in states with minimal regulation and the lowest taxable base. The logical question is whether having higher taxes can be considered a good or a bad sign.
To answer this question, we need to keep in mind that all kind of taxes are a vital source of income for the state. To provide quality public services such as health care or civil defense the state should balance their budgets appropriately. So while citizens of states with lower taxes will definitely enjoy more personal and financial freedom, they are more likely to suffer from poor quality of public service provision. As always, truth is somewhere in the middle – taxes should be neither too high nor too low. I think the federal government can be that important entity which can give an objective and adequate score to the level of taxation in any particular state. In other words, federal government should serve as an unbiased judge, intervening to correct misappropriate taxation when it is needed.