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We've always lived in states with no state income tax. Now we are seriously thinking about moving and some states we have considered impose income tax.
When moving from no-tax state to tax state and vice versa - can you tell the difference? Does state tax really affect your budget?
Somewhat yes. We are leaving a state that the upper tax bracket is 8.5% (which we are in.) to one that the tax rate is 4.35%. I look forward to having that extra 4.15% in the paychecks. We did feel it when we came out here and lost over 5% more of the paychecks.
Some states which have no income tax have unusually high sales or property taxes to make up for the lack of income tax revenue. Compare the rates of all the taxes you will be paying. For example, in Illinois the income tax is a flat 3%, which is relatively low. In contrast, the sales and property taxes tend to be quite high.
I'll second what sukwoo said. I moved to Illinois from Quebec where there was a 15% sales tax so the 9% was actually a relief. Still, IMHO, better that taxes come from a progress income tax than from regressive a sales tax. The money has to come from somewhere if you want to live in a state with functional public services, which I do.
I pay almost 9% income tax in my state, so yes, it would make a HUGE difference if I moved to a state with no income tax. Property taxes can be very different from state to state as well.
Bottom line is, if you don't make a lot of big-ticket purchases, you will save in a state with no income tax. Washington, Texas, Alaska, South Dakota, Wyoming, Florida, Nevada. However, if you do buy a lot of vehicles, furniture, appliances, clothing, etc., then these states will get your money.
When you live in a state with no income tax but with a sales tax, you are in complete control of how much taxes you pay. If you can't afford the sales tax on a $3 loaf of bread, buy a $2.50 loaf of bread. If you can't afford the sales tax on a $1200 refrigerator, buy a $1100 refrigerator, and so on.
But you can do nothing to lower your tax burden once they start taxing your income. Apart politicians and CEOs, the rest of us can't give ourselves a pay raise to compensate for the taxes we pay on our income. But with a sales tax, you do have the power to manipulate your spending in order to avoid paying higher taxes.
I am thinking the sales tax does not offset the income tax
say you spend 10k a yr on stuff
if you had a 9% sales tax, you pay 900
5% sales tax, 500
dif = 400
most state income taxes seem to be at least 5%
so, if your making 50K, with a income tax of 5%, thats 2500
you would have to buy a heckuva lot of stuff for the sales tax to equal an income tax
(these numbers are just picked at random for easy viewing)
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