No matter how you feel about the way our government spends our money, none of us wants to pay more tax than we absolutely must. So where can we go to avoid a high tax bill?
States That Have No Income Tax
Seven states do not tax wage earners on their income. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others – New Hampshire and Tennessee – tax some types of income, such as interest and dividends, but not wages. But before you get excited about packing up and moving, you should know that taxpayers in some of those states actually bear tax burdens that are among the heaviest in the country. That’s because some of those states more than make up for the lack of income taxes by taxing heavily in other areas, like property, retail goods and commodities like alcohol and tobacco.
If you really despise paying taxes, the number you need to pay attention to is the “effective tax rate.” In other words, at the end of the year, how much of your money has gone to taxes of all kinds, including property taxes, sales taxes and excise taxes as well as income taxes on wages or investment earnings? What we see upon closer examination is that in some (not all) no-income-tax states, the other taxes more than outweigh the income tax savings, resulting in a heavier overall tax burden for the 99 percent, and in particular for the taxpayers with incomes in the lowest 80 percent. (This data is based on the 2012 tax year and effective tax rates calculated by the Institute on Taxation and Economic Policy.)
Home Affordability and Other Lifestyle Issues
It won’t do you much good to know you can save money on taxes by moving to a certain place if you can’t afford to live in that place. Historically, the median U.S. home price has been around 2.6 times the median U.S. annual income. A similar number – two-and-a-half – is the benchmark that the past few generations of homebuyers have used to measure affordability. If you earn $100,000 per year, you can likely afford a home with a price tag around $250,000, give or take a few thousand dollars. For the purposes of this article, housing affordability will assume a 20 percent down payment and a 25 percent ratio of principal and interest to income.
Other factors to consider are quality of life issues. Although a certain segment of the population are true urbanites who crave convenience and culture, more people value quiet and space. And urban or rural, we all want our children to be safe and inspired at school. We enjoy public attractions like theaters, museums and state campgrounds. We desire low crime rates. So, with full acknowledgement that lifestyle criteria are subjective and depend on each person’s preferences and priorities, we’ll identify cities in tax-advantaged states that have the most to offer their residents.
Delaware tops the list due to the fact that the effective tax rate for all of its residents is under six percent. The second smallest state in the United States, Delaware has no sales tax and a relatively low cost of living.
Wilmington is the largest city and is located along the Christina River and Brandywine Creek, not far from where the Christina flows into the Delaware River. Wilmington has small-town charm, with a rich history (it was the last stop on the Underground Railroad) and picturesque parks and public gardens, but it also offers all the perks of a large city.
Those who enjoy cultural attractions attend the Playhouse, The Grand Opera House, and The Delaware Theater Company, which is the state’s first professional thespian group and performs in a newly constructed building on the Christina River. Wilmington also celebrates its musical and ethnic diversity with festivals, especially during the summer.
Often called the “corporate capital of the world,” Wilmington is home to more than half of all Fortune 500 companies, perhaps because they can save on taxes. Thus, while Wilmington boasts low taxes for individuals, the city has also been called a “Corporate Tax Haven,” by The New York Times.
The city is located midway between New York and Washington, D.C. (about 100 miles from each); a half hour to Philadelphia; 90 minutes from Baltimore, MD., and Atlantic City, N.J.; and 1 hour 45 minutes from Delaware’s beaches on the Atlantic Ocean.
Wilmington’s cost of living is relatively low, as compared with Delaware and the United States as a whole. The median household income from 2008 to 2012 (the most recent data available) was $39,761, which is quite a bit lower than the state’s $60,119. The nation’s median income was $53,046, higher than Wilmington but lower than Delaware.
The cost of housing is also lower in Wilmington. The median value of owner-occupied housing was $179,300, which was lower than Delaware’s $241,100 and the United States’ median home value of $181,400.
Compared with another large city with similar characteristics, Cleveland, Ohio, Wilmington is slightly more expensive but close to the national average. Someone earning $53,046 in Cleveland would be earning $58,934.11 in Wilmington, according to The Council for Community and Economic Research. The average apartment renter in Wilmington pays $973 per month, as compared with $965 in Cleveland and $877 nationally.
People enjoy Wilmington for its beauty, culture, and character. The low taxes allow businesses and residents to thrive.
Although Missoula, population 68,394, has a median household income of only about $39,000 (slightly lower than the median income for the state), residents get a little more for their money in the form of very low overall taxes. Montana is an extremely tax-advantaged state, boasting low effective rates at all income levels.
The best part of of living in Montana is Montana itself. Marie Osmund and Dan Seals reminisced in a famous chart-topping song about the beauty and love to be found there. If you love the outdoors, your life may not be complete without some time spent in Montana. Glacier National Park, one of the nation’s most popular attractions, encompasses over one million acres of land and is a great starting place for nature lovers. Yellowstone National Park, embracing nearly 3,500 square miles, is partially located in Montana.
Trumpeter swans, loons, pelicans, geese, moose and grizzly bears all reside here in record-setting numbers. Elk, deer and antelope outnumber humans. And that’s not to mention the golden eagle, sighted here more than anywhere else.
Tired of big city crowds and traffic? The average density in Montana is just six people per square mile. Open space is guaranteed to those who seek it. Residents enjoy four distinct seasons, with average highs in the summer around 84-85 degrees Fahrenheit and average lows in the winter around 19-20 degrees.
Unemployment is on the lower side at 5.3 percent. Like in other sparsely populated states, many of the jobs to be had will be found in bigger cities like Missoula, which recently made the Forbes top 100 best small places for business and careers list.
Missoula is home to the beautiful University of Montana campus. The city also offers many family-friendly amusements including dog-sledding, two performing arts theaters and a children’s theater. Other attractions include the National Bison Range, forests and trails, hot springs and a ghost town.
Average listing prices for homes vary widely by neighborhood (many millionaires make their home in Montana), and in March 2014 ranged from about $200,000 to $400,000.
Overall, few places on earth can rival Alaska’s stunning and unspoiled land. And Anchorage – the state’s largest and most populous city and home of the University of Alaska – is particularly rich in cultural and educational opportunities. The state’s apt motto is “The Last Frontier” and people who make their life in such a place, even a large urban center like Anchorage, can be counted on to be generally more polite, forthcoming and helpful than their counterparts in the lower 48.
Money is good. The average state-wide income for 2012 (the most recent year for which figures are available) was $49,436. That is about $6,000 higher than the U.S. average. Not surprisingly, Anchorage (at $52,360) led the per capita average for towns and cities.Annual salaries and hourly wages by occupation title are also high. Unemployment overall at 6.4 percent is slightly lower than the national average but it is especially low in the Anchorage area at 5.2 percent.
Beefed-up income levels are necessary partially because virtually everything must be imported, and in many places that means either by air or sea (including Juneau, the state capital) because there is no road access. However, Anchorage is connected by a network of roads and highways. Average housing costs are on par with a region like Hampton Roads, Virginia. In Anchorage currently, one bedroom apartments average $500-$650 and two bedroom apartments are in the $650-$850 range. Single family home rents are $850-$2000. Condos sell for an average of $217,000 and home sales are about $315,000.
Over the past 10 years, city life throughout Alaska has normalized and there is no reason for women to leave. That means the shortage of women in Anchorage is less severe than it used to be. Life in Anchorage is no longer isolated and difficult and therefore more appealing to women. The Internet and ”big box” stores provide the kind of conveniences that were lacking in much of Alaska until just a decade ago.
With astonishing varieties of wildlife, some of the best salmon fishing on earth, breathtaking scenery, clean air and the Northern Lights, Anchorage offers unrivaled new beginnings.
Washington, District of Columbia
Washington, DC makes our “best” and “worst” lists at the same time. The effective tax rate is extremely good for the lowest earners, but for middle income earners (those earning $38,000 to $62,000) the effective tax rate is the fourth highest in the nation. DC is in the worst ten states for the next two income groups, and ranks right in the middle for the highest income groups.
Among urban centers in the United States and compared with capitals around the globe, Washington, DC ranks with the most gracious, elegant, endlessly entertaining and accessible cities of them all. About five million people live in the Greater Metropolitan area (650,000 in DC, specifically), and an overwhelming majority of them are employed in the region’s three principal industries: Federal and local government, education and tourism.
Unemployment at 4.7 percent is significantly below the national average and wages are high, as is the cost of real estate. Although DC isn’t necessarily the most affordable city, with home prices averaging $372,000 region-wide, and $460,000 in the District of Columbia, the median annual household income is more than $91,000. With dependable employment at healthy wages, DC is one of the few places in the country that did not suffer a precipitous drop in the housing market – or the joblessness, financial instability and recession – that followed the economic collapse of 2008.
The city itself is aesthetically pleasing, to say the least. A French architect and civil engineer, Pierre L’Enfant, saw to it that the city would be built on a grand scale, with plenty of open space and light. He planned the layout of DC’s streets. Comparison with Paris was intentional.
Virtually everyone knows the chief landmarks (White House, the Capitol) but few realize that an abundance of things to do in DC cost nothing. The national museums located here have no entrance fees. On a windy spring day, families wander over to the grassy knoll of the Washington Monument to fly the kites they bought at the Air and Space Museum. Fathers and daughters stroll along the Ellipse testing the boomerangs they found in the Museum of American history gift shop. Keen gardeners inspect the flora inside the National Arboretum.
Some of the country’s best institutions of higher education are located in DC, including the National Defense University, National Defense Intelligence College, University of the District of Columbia, American University, George Washington University, Georgetown University and Howard University, among others.
Access to the sights (and to work) is eased by a first-rate public transportation system, chiefly the Metro. And while people grouse about commuting traffic snarls, getting in and out of DC is a short-lived inconvenience compared to New York City or Los Angeles. DC is the nation’s capital and the capital of the world and a super place to live and work.
Mount Pleasant, South Carolina
South Carolina offers favorable tax rates to residents at all income levels. Don’t let Mount Pleasant’s small population – 72,000 – fool you. The city is just a few miles from Charleston and North Charleston, so it enjoys many big city benefits while holding onto its smaller community feel.
CNN and Yahoo! Voices both rank Mount Pleasant in the top 100 best places to live. Influencing factors include its miles of coastline and beaches and a highly rated public school system. Mount Pleasant enjoys a mild climate, with lows in the winter that nearly always remain above freezing, and has dozens of libraries and several museums. At least 22 golf courses are in close proximity, and restaurants number about one thousand.
Although Mount Pleasant is part of a larger metro area, local employment opportunities are good and few residents (only 6.4 percent) find that they must commute long distances (45 minutes or longer) for work. Unemployment in South Carolina is 6.4 percent, neither high nor low compared to the rest of the country.
If you love the ocean and beach, Mount Pleasant really is a wonderful place to live. Many of its favorite attractions – a maritime museum, a bridge walk, a water taxi and a water park – involve life on or near the water. The military has a strong presence here so expect to enjoy attractions and events related to the armed forces, like warships and fighter jets to discover and tour. Mount Pleasant is about halfway between Myrtle Beach and Hilton Head, two popular destination cities.
The crime rate is well below the national average. GreatSchools.org gives the Mount Pleasant education system an overall rating of 9 out of 10, which is outstanding.
Money is good here, too, with a median household income of over $76,000. The median home sale price is $329,500 (Q1 2014). The price range in the surrounding area varies widely and the housing market is stable. Neighboring zip codes show average home sale prices of $230,000, $160,000, even $45,000. A qualified homebuyer does not need deep pockets to find someplace suitable and pleasant to live in Mount Pleasant or the surrounding area.
Las Vegas, Nevada
On the tax front, the poorest Nevada residents get the short end of the stick, paying an effective tax rate of 9 percent. The other 80 percent of residents, though, pay a much more friendly percentage of their income on the myriad of taxes we all pay.
The pros of life in Las Vegas far outweigh the cons. It is a great place to live, prosper and retire with plenty of fun things to do. The city is clean. Crime is low. Access is easy. Las Vegas is shaped as a grid, with wide boulevards that feature right angles and ease of navigation. In the urban French manner of light and space, Las Vegas does not create debilitating traffic jams in the manner of Manhattan. Pedestrians can walk, shop and dine in safety and comfort.
The climate is like the San Joaquin Valley, but the similarities end there. In the San Joaquin Valley agriculture and pollution often result in a blood red rising moon. In Las Vegas, the air is clear and breezes keep it clean. The moon is its traditional silver.
Average temperatures are hottest in June, July and August, as expected. But keep a perspective. Heat in Las Vegas (and in Nevada overall) is not the oppressive discomfort of a Gulf Coast or mid-Atlantic coast, semi-tropical sticky summer. Las Vegas is among the top 10 cities in the nation with the lowest average humidity – at about 30 percent. And that makes life very nice, indeed.
Anyhow, you can escape city heat by heading up to green places where most of the planned communities have nestled. Among the trees up there, temperatures can be as much as nine degrees cooler than the city center. Some communities even have lakes. Recommended havens include Lake Sahara, Desert Shores (four beautiful lakes in the complex), Peccole Ranch and Summerlin.
Summerlin is the largest of the planned communities with 35-square miles of villages, shopping and office space on the western border of the city. For comparison, San Francisco has 49-square miles. Great desert ambiance embraces wonderful man-made landscaping. Housing prices have rebounded in the Las Vegas region to a median range that is now at $185,000.
The caveat of moving to Las Vegas: the best candidates will have an income stream planned. Without your own business, a retirement income or special skill you know is in demand, Las Vegas poses a challenge. The unemployment rate is above the national average, but it is dropping. Consumer prices have also dropped and hourly wages tend to be about the same or slightly higher than the national average, and the general trend is positive.
Taxes in Wyoming are among the lowest in the U.S.for all taxpayers. The effective tax rates go down as income goes up, but are fair or better for the top 80 percent of earners. Wyoming wins first place nationwide for lowest taxes for the wealthiest Americans, the top 1 percent.
We choose Casper as our favorite city, with Cheyenne a close second and Laramie just behind.
With over 78,000 people residing in the greater metropolitan area, Casper is one of the largest cities in America’s least populous state, but small enough to retain an intimate small-town feel. The people are independent and famously self sufficient. The “Old West” culture persists in everyday life as much as in the world class rodeo exhibitions regularly featured.
Wyoming simply cannot be beat if you love to be outdoors. Roaming the wide open spaces is just one choice on a much larger menu that includes skiing, hunting, fishing, ranching, hiking, bird-watching and just about any other outdoor activity imaginable. Average temperatures from April to October range from 60 to 88 degrees. Winters are snowy and cold.
In Wyoming, the cost of living tends to be slightly lower than the national average. And the per capita spending is more heavily in favor of residents: public schools invest $7,382 in each student, 30 percent more than the national average of $5,700.
The job market is much better than most other areas. Wyoming has the sixth lowest unemployment rate nationwide at just 4.3 percent. A high percentage of employment opportunities are in Casper and the other, more populous cities. Casper was recently named one of Forbes’ top 100 best small places for business and careers.
Casper also has a great deal to offer to those who love the arts, including a symphony orchestra, three performance theaters and a 10,000 seat venue for big-name acts. When you’re ready to ditch the crowds, hit a golf course or head to Casper Mountain on your bike.
For singles, a downside to moving to a city with a population as small as Casper’s is the limit on dating opportunities. Know, however, that Casper is nearly evenly split between men and women, so at least your chances are not unfairly stacked against you.
The median home value in Casper is $168,500. The median income is around $57,000. Based on income alone, a family with no other debt could afford a $250,000 mortgage.
Portsmouth, New Hampshire
During the Revolutionary War Captain John Paul Jones strolled along the banks of the Piscataway River in Portsmouth, New Hampshire waiting for his first command. By the middle of the 19th century local shipwrights launched stately clippers in the historic harbor to support miners in the diggings of California’s gold rush.
Portsmouth is a New England gem – one of America’s least known and most habitable cities.
Cozy restaurants and pubs along the waterfront on Ceres Street invite residents and visitors alike. (See the webcam at http://www.portsmouthnh.com/cam/.) A welcoming downtown of wooden colonial houses and stately Victorian brick buildings provides banking, bistros and hotel accommodations. Strawberry Banke’s 10 acres of outdoor museum space displays the architecture, heritage plants and foods, traditional crafts and tools, clothing and collections people used for everyday life as far back as the 1600s.
The school system (4 elementary schools, 1 middle school and a high school) lives up to the traditional high standards of New England education and literacy. The University of New Hampshire in nearby Durham offers a broad range of undergraduate majors and graduate specialties leading to the Ph.D. degree. Tuition, fees, room and board is estimated to be $26,500 per year.
Harbor breezes mark the warmer months. Houses tend to stay cool in summer with the help of cross ventilation and strategically placed fans. Many residents do not find it necessary to install central air conditioning. Winters can deliver a hammering but local authorities are world-class experts on snow removal and keeping the town accessible. Boston’s Logan Airport is about an hour south, close enough to make air travel easy but just far away enough to spare Portsmouth from being a car-congested commuter town.
Median house prices come in at $313,000, with the trend inclined slightly upwards as spring is traditionally the optimum time for sellers. The average listing price is $530,000, a figure perhaps skewed by the $1 million-plus homes on New Castle island. Tax exemptions are provided for the disabled, elderly, veterans and others. The 2013 property tax rate is $17.91 per thousand dollars of valuation. The median 4-person household income is $89,740 and the unemployment rate at 4.2 percent is significantly below the national average.
Worst Places For Taxpayers To Live
We’d do our readers an injustice if we neglected to at least mention the places in America where taxpayers give up the largest portions of their incomes. The following states are those in which the residents who can least afford it pay the largest share (11 percent or more) of their income in various taxes. Sixteen states make the list, plus two honorable mentions for high tax rates for at least one other income group.
We wish you many happy tax returns and an abundance of refunds.
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Andrea Osmun contributed to this article.