Govt 14: Key Income sources for state governments from individuals (v1.0)

In this essay, I briefly describe the key income sources for state governments for 2023 or 2024 from individuals which is part of the cost of living for individuals in that state. My focus is more on what a senior citizen has to pay out, rather than what the state actually uses that revenue for. I live in Hawaii. I had collected this information for my own reasons and decided to share. 

Property taxes are often levied by a county, and significantly influence the operational capacity of local services and infrastructure. Property tax is on the assessed value (less deductions like seniors or homeowners) which may be lower than the market value. Hawaii has the second lowest property tax rate in the US, but property prices are high, so the government gets quite a bit of money from this. Louisiana has the lowest rate. New jersey has the highest and New Hampshire and Texas are in the top three. Florida and California are in the middle. California (my old state) had three times Hawaii's rate. 

Median Property Tax Rates By State Ranked highest to lowest by median property tax as percentage of home value [1]
1.) New Jersey 1.89%	2.) New Hampshire 1.86%	3.) Texas 1.81%	4.) Nebraska 1.76%
5.) Wisconsin 1.76%	6.) Illinois 1.73%	7.) Connecticut 1.63%	8.) Michigan 1.62%
9.) Vermont 1.59%	10.) North Dakota 1.42%	11.) Ohio 1.36%	12.) Rhode Island 1.35%
13.) Pennsylvania 1.35%	14.) Iowa 1.29%	15.) Kansas 1.29%	16.) South Dakota 1.28%
17.) New York 1.23%	18.) Maine 1.09%	19.) Minnesota 1.05%	20.) Massachusetts 1.04%
21.) Alaska 1.04%	22.) Florida 0.97%	23.) Washington 0.92%	24.) Missouri 0.91%
25.) Maryland 0.87%	26.) Oregon 0.87%	27.) Indiana 0.85%	28.) Nevada 0.84%
29.) Georgia 0.83%	30.) Montana 0.83%	31.) North Carolina 0.78%	32.) California 0.74%
33.) Oklahoma 0.74%	34.) Virginia 0.74%	35.) Arizona 0.72%	36.) Kentucky 0.72%
37.) Idaho 0.69%	38.) Tennessee 0.68%	39.) Colorado 0.6%	40.) Utah 0.6%
41.) Wyoming 0.58%	42.) New Mexico 0.55%	43.) Mississippi 0.52%	44.) Arkansas 0.52%
45.) South Carolina 0.5%	46.) West Virginia 0.49%	47.) District of Columbia 0.46%	48.) Delaware 0.43%
49.) Alabama 0.33%	50.) Hawaii 0.26%	51.) Louisiana 0.18%

 

The federal government has a graduated income tax. State income taxes are an important source of revenue for a state. In California (which has a graduated income tax) I fell into the 9.3% marginal tax bracket. and got a standard deduction of 10K. In Hawaii (which has a graduated income tax) I fall into the 8.25% marginal tax bracket and standard deduction is about 4K but irrelevant since I itemize. The states with no income tax are Texas, South Dakota, Florida, Washington (has capital gains tax only), Tennessee, Nevada, Alaska, and Wyoming. Arizona has a flat rate of 2.5% and 29K standard deduction. Other states with flat rates are Colorado, Idaho, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, New Hampshire (interest and dividend income), North Carolina, Pennsylvania, Utah, and Washington (Capital Gains).  

In Hawaii, Social Security is exempt from income taxes (along with 37 other states). Social Security is taxable subject to income thresholds in federal income taxes. Minnesota and Utah are the only states that tax social security using the same income thresholds as federal. The other 10 states that tax social security to some degree, are New Mexico, Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, Rhode Island, West Virginia, and Vermont. 

  

2024 State Income Tax Rates and Brackets | Tax Foundation

 

Connecticut is the only state that imposes a gift tax (paid by the doner).  There are also federal gift taxes laws. Federal gift tax laws offer a few tens of thousands of dollars exclusion per person per year and a lifetime exemption in the millions of dollars tracked by gift tax returns - IRS form 709. 

Estate and Inheritance taxes is another important source of income. There is no federal inheritance tax. There is no federal estate tax unless the estate is more than 13 million dollars. Estate tax is on the estate before it is distributed. Inheritance tax is paid by the inheritor. Six states have inheritance taxes including Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Hawaii has no inheritance tax but has an estate tax for estates value above 5.49 million dollars. 

2023 Estate and Inheritance Taxes by State | The Motley Fool

Sales tax is also an important source of revenue. Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax. In California it was 7.5%. Colorado has the lowest among states with sales tax at 2.9%. In Hawaii it is 4% (second lowest among states with sales tax along with Georgia, South Dakota, Alabama and Wyoming). But cost of goods is high in Hawaii, so the government gets quite a bit of money from this.  

State Sales Tax Rates [1] View local sales taxes by state
Alabama 4%	Alaska No Sales Tax	Arizona 5.6%	Arkansas 6.5%
California 7.5%	Colorado 2.9%	Connecticut 6.35%	Delaware No Sales Tax
District of Columbia 5.75%	Florida 6%	Georgia 4%	Hawaii 4%
Idaho 6%	Illinois 6.25%	Indiana 7%	Iowa 6%
Kansas 6.5%	Kentucky 6%	Louisiana 4%	Maine 5.5%
Maryland 6%	Massachusetts 6.25%	Michigan 6%	Minnesota 6.88%
Mississippi 7%	Missouri 4.23%	Montana No Sales Tax	Nebraska 5.5%
Nevada 6.85%	New Hampshire No Sales Tax	New Jersey 7%	New Mexico 5.13%
New York 4%	North Carolina 4.75%	North Dakota 5%	Ohio 5.75%
Oklahoma 4.5%	Oregon No Sales Tax	Pennsylvania 6%	Puerto Rico 6%
Rhode Island 7%	South Carolina 6%	South Dakota 4%	Tennessee 7%
Texas 6.25%	Utah 5.95%	Vermont 6%	Virginia 5.3%
Washington 6.5%	West Virginia 6%	Wisconsin 5%	Wyoming 4%

1. The provided sales tax rates do not account for local county or city sales taxes, sales tax exemptions, or additional state-specific sales tax laws.

Taxes are just part of the cost. The average overall cost of living in a state depends on a number of factors. Other costs include shelter, healthcare, household goods, and food/gas/energy. Here are the states with the highest cost of living based on monthly household bills. 

1. Hawaii
2. California
3. Massachusetts
4. New Jersey
5. Maryland
6. Washington
7. New York
8. Connecticut
9. Colorado
10. New Hampshire

Here is the statistics for these top 10 states. 

Hawaii:

• Household median income: $94,814 
• Household mean income: $122,902 
• Rent average cost in April 2024: $2,316 
• Average expenditure cost: $2,617 
• Total cost of living: $4,933
• Highest happiness index. (Maryland, Minnesota and Utah follow)

California: 

• Household median income: $91,905 
• Household mean income: $130,718  
• Rent average cost in April 2024: $2,147  
• Average expenditure cost: $2,363
• Total cost of living: $4,510

Massachusetts:

• Household median income: $96,505 
• Household mean income: $134,568   
• Rent average cost in April 2024: $1,959 
• Average expenditure cost: $2,342
• Total cost of living: $4,301

New Jersey: 

• Household median income: $97,126 
• Household mean income: $135,170 
• Rent average cost in April 2024: $1,904 
• Average expenditure cost: $2,079
• Total cost of living: $3,983

Maryland: 

• Household median income: $98,461 
• Household mean income: $129,642    
• Rent average cost in April 2024: $1,798 
• Average expenditure cost: $2,059
• Total cost of living: $3,857

Washington:

• Household median income: $90,325 
• Household mean income: $122,880 
• Rent average cost in April 2024: $1,745   
• Average expenditure cost: $2,266
• Total cost of living: $4,011

New York:

• Household median income: $81,386 
• Household mean income: $120,883 
• Rent average cost in April 2024: $1,839 
• Average expenditure cost: $2,106 
• Total cost of living: $3,945

Connecticut:

• Household median income: $90,213  
• Household mean income: $130,601 
• Rent average cost in April 2024: $1,625 
• Average expenditure cost: $2,181
• Total cost of living: $3,806

Colorado:

• Household median income: $87,598 
• Household mean income: $117,508  
• Rent average cost in April 2024: $1,677 
• Average expenditure cost: $2,014 
• Total cost of living: $3,691

New Hampshire:

• Household median income: $90,845 
• Household mean income: $118,118 
• Rent average cost in April 2024: $1,492 
• Average expenditure cost: $2,271
• Total cost of living: $3,763

To summarize from my viewpoint, Hawaii has low sales tax rate, low property tax rate, and a reasonable income tax rate for seniors with social security exempt. It also has the best happiness index, has great weather, great scenery and beaches, a clean environment, and healthcare on Oahu at least is great. Overall crime grade of my town is A- and our home is in an even safer part of that town and our condo complex also has good security to make it even safer. It offers a more relaxed way of life where the Aloha spirit fosters community. Also, where your relatives and close friends are, is also a factor (all my wife's family lives in Hawaii). But it tops in cost of living. The cost of a comfortable living for a single retiree is highest in Hawaii ($121K) followed by Massachusetts ($97K) followed by California ($91K). If you can afford it in retirement and have local connections, it is paradise on earth for your sunset years!! But remember that nursing home and assisted living costs can be high at the very end in Hawaii if this becomes necessary!!