Comparison of 2006 Individual Income Tax Burdens by State

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2 Comparison of 2006 Individual Income Tax Burdens by State, Copyright September, 2009 Minnesota Taxpayers Association and other associations of The National Taxpayers Conference This report may not be reproduced in whole or in part without written permission from MTA or another NTC member association (see Acknowledgements for NTC association contacts). For information contact: Minnesota Taxpayers Association 85 East 7 th Place, Suite 250 Saint Paul, Minnesota

3 Acknowledgements This report would not have been possible without the cooperation and assistance of many individuals. Special thanks is due to the staff of the Minnesota Department of Revenue s Research Division, who developed the assumptions used in the study s examples; to MTA Research Intern Tim Barry for his research and writing support; and our sister taxpayer associations who, along with MTA, are members of the National Taxpayers Conference. We are especially grateful to the National Bureau of Economic Research for their assistance and for the use of the TAXSIM model for calculating the tax liabilities in this report. MTA used version 8.2 in creating this report. NBER s TAXSIM webpage is Persons interested in understanding more about the TAXSIM model are encouraged to read An Introduction to the TAXSIM Model by Daniel Feenberg and Elisabeth Coutts, which was published in the Journal of Policy Analysis and Management Vol. 12 no. 1 (Winter, 1993); and which is available at About the Minnesota Center for Public Finance Research The Minnesota Center for Public Finance Research is the 501c3 supporting research and education organization for the Minnesota Taxpayers Association. The Center s mission is to provide objective research and analysis on state and local tax and spending issues in support of effective, efficient, and accountable government. The Center seeks to equip citizens to be influential voices for good government and sound fiscal policies by increasing public understanding of what government does. The Center provided substantial funding for this project. For access to this publication on line, visit our website at About the Minnesota Taxpayers Association The Minnesota Taxpayers Association was founded in 1926 for the purpose of disseminating factual information that will educate and inform all Minnesotans about Minnesota tax and spending policies. For over eighty years, the Association has advocated for the adoption of sound fiscal policies through its research efforts, publications, and meetings. The Association is a non-profit, non-partisan group supported by membership dues. For information about membership, call (651) , or visit our web site at About the National Taxpayers Conference The National Taxpayers Conference (NTC) is a private, nonprofit corporation whose members are the full-time chief executive officers of statewide associations devoted to the pursuit of objective and unbiased analysis of public finance issues. Each member association shares a common mission to provide accurate, unbiased research on state and local taxation and spending policies in their respective states. Some NTC members focus on research; others combine research with active taxpayer advocacy through state and local lobbying. The National Taxpayers Conference is a co-sponsor of this study; the organizations listed on the following page are members of the NTC.

4 Members of the National Taxpayers Conference Public Affairs Research Council of Alabama Minnesota Taxpayers Association Arizona Tax Research Association California Taxpayers Association Florida Taxwatch, Inc Associated Taxpayers of Idaho Taxpayers Federation of Illinois Indiana Fiscal Policy Institute Iowa Taxpayers Association Public Affairs Research Council of Louisiana Massachusetts Taxpayers Foundation Citizens Research Council of Michigan Montana Taxpayers Association Nebraska Tax Research Council New Mexico Tax Research Institute Nevada Taxpayers Association Ohio Public Expenditure Council Rhode Island Public Expenditure Council Texas Taxpayers and Research Association Utah Taxpayers Association Washington Research Council Wisconsin Taxpayers Alliance Wyoming Taxpayers Association

5 Table of Contents I. FREQUENTLY ASKED QUESTIONS... 1 II. INTRODUCTION... 5 III. ANALYSIS AND FINDINGS... 7 Measure of Systemic Progressivity... 7 A Note Regarding Earned Income Tax Credits... 8 Comparison of Tax Year 2003 and Tax Year 2006 Results IV. APPENDIX A: METHODOLOGY V. APPENDIX B: OTHER METHODS OF COMPARING INDIVIDUAL INCOME TAX BURDENS VI. VII. APPENDIX C: FEDERAL INCOME TAX AND PAYROLL TAX LIABILITIES41 APPENDIX D: CHANGES IN TAX RATES AND INCOME BRACKETS FROM 2003 TO

6 List of Tables Table 1: Ten Most Progressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $10,000 for Married-Joint Returns... 7 Table 2: Ten Most Regressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $10,000 for Married-Joint Returns... 8 Table 3: Ten Most Progressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $35,000 for Married-Joint Returns... 9 Table 3: Tax Year 2006 Income Tax Burdens for Married-Joint Filers* Table 4: Tax Year 2006 Income Tax Burdens for Head of Household Filers* Table 5: Tax Year 2006 Income Tax Burdens for Single Filers* Table 6: Tax Year 2006 Income Tax Burdens for Married-Joint Senior Filers* Table 7: Comparison of Tax Year 2003 and Tax Year 2006 and Net Tax, by State, Filing Status, and Gross Income Table 8: Fiscal Year 2006 State and Local Income Tax Collections per Capita Table 9: Fiscal Year 2006 State and Local Income Tax Collections per $1,000 of Personal Income Table 10: Personal Income Tax as a Share of Family Income, Table 11: Tax Year 2006 Federal Income Tax Burdens for Married-Joint Filers* Table 12: Tax Year 2006 Federal Income Tax Burdens for Single Filers* Table 13: Tax Year 2006 Federal Income Tax Burdens for Head of Household Filers* Table 14: Tax Year 2006 Federal Income Tax Burdens for Senior Filers* Table 15: Tax Year 2006 Payroll Tax Burdens by Filing Type and Gross Income Table 16: Tax Year 2003, 2006, and 2008 Tax Rates and Income Brackets, Individual Income Tax, Married-Joint Filers, Various States... 47

7 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference I. Frequently Asked Questions What s in this publication? This Comparison of 2006 Individual Income Tax Burdens by State calculates the net income taxes paid for the following filer types: Single (at 8 different income levels) Married-filing-joint 1 (at 10 different income levels) Head of household 2 (at 6 different income levels) Senior 3 (at 4 different income levels) The study also provides additional analysis and commentary. Since this is 2009, why are you reporting on tax year 2006? Data from state and federal government sources often have a time lag of two or more years since the data must be collected and verified and inaccurate records corrected or eliminated. Since the most recent available data regarding the amounts of deductions taken by filers at various income levels is for tax year 2006, this study analyzes that tax year. How is this study different from other reports which examine and rank state income tax burdens? There are three ways to examine relative income tax burdens: 1. Compare individual tax burdens across states at various gross income levels. This method looks at the actual taxes paid by hypothetical families using reasonable assumptions about sources of income, deductions, and credits taken. This is the approach used in this study. 2. Compare aggregate state income tax collections on either a per capita or per income basis. This method simply sums up all the state income tax collections and divides it by total state population or total state income. 3. Compare distribution of the tax burden across income classes. This method examines who actually pays the income tax by calculating shares of income taxes paid by different ranges or classes of income. One method of presenting this information shows how much of the total tax burden is paid by the top 5% of filers, the top 10% of filers, the top 25% of filers, and so forth. Another method divides the population into group of equal size, on an income or population basis, and then shows the effective tax rate (total tax divided by total income) for each group. Each approach offers an important and different perspective on state income taxation. This study is unique in that it provides a real feel dimension to state income tax comparisons by modeling actual tax returns for different types of households. 1 Defined as households with two wage earners and two dependents. 2 Defined to include households with one dependent. 3 Defined as households with persons age 65 or older submitting married-filing-joint returns. The other three filing types represent non-senior households. 1

8 Frequently Asked Questions For reference purposes Appendix B provides the most recently available information on the other two approaches to comparing state income taxes. Does this study include income tax calculations for every state? This study covers income tax burdens in 41 states and the District of Columbia. The nine remaining states either have no state income tax, or a tax that is so limited that it is not worth including in this analysis. Those states are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Does this study include local income taxes? This study covers local income tax burdens in states where more than half of the population live in jurisdictions where a local income tax is imposed. For 2006, four states met that standard: Indiana, Maryland, Ohio, and Pennsylvania. The tax rate used was that imposed on the largest segment of the population. See the methodology section for more information on how the local income tax burden is calculated. How do you calculate the tax burdens? In earlier versions of this study, we calculated the tax liability for each permutation of state, filing status, and income either by hand or through the use of tax return software. For this study, we are using an alternative to this labor-intensive process: the National Bureau of Economic Research s TAXSIM; a FORTRAN program for calculating liabilities under federal and state income tax laws from individual data. 4 But individual income tax returns will differ significantly from household to household even among the same filer types. How do you determine the assumptions to calculate the income tax burdens? The Minnesota Department of Revenue s Research Division provided data on taxpayer income (wages, interest earnings, capital gains, etc.) and deductions for the four filer types at all the income levels included in this study. The data comes from the entire population of Minnesota filers for the 2006 tax year. Then, to ensure the tax calculations and rankings reflect actual conditions in other states, we adjusted all income tax deductions (except for the state income tax deduction, which TAXSIM calculates automatically) using state-specific data from the Statistics of Income Bulletin from the Internal Revenue Service for Spring, 2008 (which corresponds with tax year 2006). See our Methodology section for more information on how these adjustments take place. These state adjustments are crucial since deductions will vary considerably from state to state. For example, a Minnesota married-joint filer with gross income of $75,000 has a median real property tax deduction of $2,104. However, we know that the value of this deduction will be different in other states due to differences in median home values and effective property tax rates. 4 Version 8.2 was used to create this report. NBER s TAXSIM webpage is Readers interested in understanding more about the TAXSIM model are encouraged to examine An Introduction to the TAXSIM Model by Daniel Feenberg and Elisabeth Coutts, which was published in the Journal of Policy Analysis and Management Vol. 12 no. 1 (Winter, 1993); and which is available at 2

9 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference So, this report compares individual income tax burdens between different states. What else does it do? The study also provides: Data on the most progressive and most regressive income tax systems A comparison of the study s results with the results from our tax year 2003 study (published December 2004) Federal income and FICA tax burdens for each filer type and income level in each state (Appendix C) Changes to state income tax rates and brackets since tax year 2006 (Appendix D) I notice that in many cases, tax burdens have declined from the 2003 version of this study. Does this mean that taxes have really gone down? Not necessarily, because over time a constant amount of income will generally yield a smaller amount of tax revenue, unless there is some change to the tax code. Some (but not all) states index their tax brackets to some form of inflation (usually the Consumer Price Index). States do this to prevent bracket creep, where inflationary pressures move households into higher tax brackets, resulting in larger tax payments even though the household is economically no better off. Other states indirectly adjust income by incorporating the federal standard deduction and personal exemption (which are also indexed annually for inflation) into their calculation of taxable income. Clearly, changes in the amount of reported itemized deductions also play a role in changing net tax burdens from study to study. In 2006, itemized deductions have generally risen for all income levels this also pushes net tax burdens down. Some changes in net tax are related to changes to personal income tax rates, exemptions, or other items. The message is this: to completely interpret the changes in net tax for your state, check to see whether your legislature and governor modified the individual income tax regime between 2003 and All right, so you have to be careful when comparing net tax burdens from one year to another. Are there any other cautions in interpreting this study? It s also important to recognize that income taxes are just one piece of the combined state and local tax system. Some states have lower income taxes because their local governments are more own-source revenue dependent. Certain states place more responsibility for public service delivery with local government which often translates into relatively lower income tax burdens. As a result, the study is most useful when used in connection with other information about state and local tax structures. Are there any items that are not included in this study? We exclude property tax refunds or credits that are included on an income tax return from the analysis in this study to create consistent treatment of all states. Some states have property tax rebate or credit provisions as part of the income tax return but most offer property tax rebates that must be filed for separately from the income tax return. We were not able to model these separate property tax rebate programs and include them in the analysis. Including some property tax rebate programs but excluding others would create an applesto-oranges comparison between states. 3

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11 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference II. Introduction This study provides a comparison of individual income tax burdens in 41 states and the District of Columbia. It is a complete revision of our burden studies for tax years 1997, 1999, and The assumptions used in this study were developed by the Minnesota Department of Revenue s Research Division using aggregate data from actual 2006 tax returns. The assumptions for each filer types were adjusted on a state-by-state basis to more accurately determine the actual tax paid in each state. See our Frequently Asked Questions and Methodology sections for more information on these adjustments. This report uses the National Bureau of Economic Research s TAXSIM Version 8.2 income tax simulator (available at to calculate the tax liability for four different filer types at four to ten different income levels in each of the participating jurisdictions. Persons interested in understanding more about the TAXSIM model are encouraged to read An Introduction to the TAXSIM Model by Daniel Feenberg and Elisabeth Coutts, which was published in the Journal of Policy Analysis and Management Vol. 12 no. 1 (Winter, 1993); and which is available at Why Do ings Matter? In today s world of increased mobility and competition for economic development, states are increasingly watching each other. They must balance the need to provide the high-quality public services and infrastructure improvements needed to encourage economic growth with the need to be fiscally competitive. States that fail to provide adequate services and public investments are likely to lose ground to those that do. On the other hand, if they don t control costs and let their tax burdens rise too far above those of other states, they could loose their competitive edge and fail to attract the kind of jobs and workers needed for long-term prosperity. The tax rankings provided in this report combined with other tax and spending measures can help policy makers assess the state s competitive position. The rankings provided in this report also give us information about how state income tax systems treat taxpayers at different income levels, that is, the progressivity or vertical equity of state income taxes. 5

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13 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference III. Analysis and Findings The findings of this study are reported in three main areas: First, we provide a measure of structural progressivity; showing the ten most progressive and least regressive income tax systems (Tables 1-2). Second, we report the individual income tax burdens and rankings for all filer types and income levels for tax year 2006 (Tables 3-6). Finally, we report state-specific changes from tax year 2003 to tax year 2006 (Table 7). We provide data on federal income and payroll tax liabilities in Appendix C. Measure of Structural Progressivity One principle commonly used when evaluating tax systems or tax proposals is progressivity or fairness (i.e. taxation based on an ability to pay). Income taxes are generally among the most progressive taxes; and therefore the tax burden increases with increased income. Progressivity is achieved mainly through the use of differential income rates at various income levels with tax rates rising as income levels rise. The following table shows the relationship between the effective tax rate at $150,000 of gross income and higher versus that at $10,000 of gross income; for married-joint filers. A higher rate gap indicates greater progressivity. Table 1: Ten Most Progressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $10,000 for Married-Joint Returns Married Filing Joint Returns $150,000 vs. $10,000 $250,000 vs. $10,000 $500,000 vs. $10,000 $1,000,000 vs. $10,000 Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* 1. D.C. 19.7% 1. D.C. 20.2% 1. Vermont 21.4% 1. Vermont 22.0% 2. New York 19.3% 2. New York 20.1% 2. D.C. 21.0% 2. D.C. 21.4% 3. Vermont 18.6% 3. Vermont 20.0% 3. New York 20.4% 3. New York 20.7% 4. Minnesota 14.8% 4. Minnesota 15.5% 4. Minnesota 16.4% 4. Minnesota 16.9% 5. Kansas 13.8% 5. Kansas 14.3% 5. Kansas 14.8% 5. Kansas 15.1% 6. Maryland 11.6% 6. New Jersey 12.6% 6. New Jersey 13.5% 6. New Jersey 14.6% 7. New Jersey 11.4% 7. Maryland 12.0% 7. Maryland 12.3% 7. Maryland 12.5% 8. Wisconsin 10.9% 8. Wisconsin 11.3% 8. Wisconsin 11.8% 8. Wisconsin 12.0% 9. Massachusetts 10.6% 9. Massachusetts 10.9% 9. Massachusetts 11.1% 9. Massachusetts 11.2% 10. Michigan 9.5% 10. Michigan 9.7% 10. Oregon 10.2% 10. Oregon 10.5% * Tax Rate Gap refers to the difference between the state s effective tax rate (ETR) at $10,000 versus the ETR at the higher income examples shown. For example, New York s ETR for married-filing-joint returns at $10,000 is -14.0%, and at $150,000 it is 5.3%. The gap of 19.3% is calculated as $150,000 ETR (5.3%) minus $10,000 ETR (-14.0%). Table 2 shows the same relationship, but displays instead the ten most regressive (or least progressive) states. 7

14 Analysis and Findings Table 2: Ten Most Regressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $10,000 for Married-Joint Returns Married Filing Joint Returns $150,000 vs. $10,000 $250,000 vs. $10,000 $500,000 vs. $10,000 $1,000,000 vs. $10,000 Most Regressive Income Tax States Tax Rate Gap* Most Regressive Income Tax States Tax Rate Gap* Most Regressive Income Tax States Tax Rate Gap* Most Regressive Income Tax States Tax Rate Gap* 42. Alabama 1.6% 42. Alabama 1.6% 42. Alabama 1.6% 42. Alabama 1.6% 41. Illinois 2.4% 41. Pennsylvania 3.1% 41. Pennsylvania 3.1% 41. Pennsylvania 3.1% 40. Pennsylvania 3.1% 40. Illinois 3.2% 40. Louisiana 4.1% 40. Louisiana 4.1% 39. Mississippi 3.6% 39. Mississippi 3.9% 39. Illinois 4.2% 39. Colorado 4.3% 38. Connecticut 3.6% 38. North Dakota 4.0% 38. Colorado 4.3% 38. North Dakota 4.5% 37. North Dakota 3.6% 37. Louisiana 4.1% 37. Mississippi 4.3% 37. Mississippi 4.5% 36. Missouri 3.7% 36. Colorado 4.2% 36. North Dakota 4.3% 36. Illinois 4.7% 35. Louisiana 4.0% 35. Connecticut 4.2% 35. Indiana 4.7% 35. Indiana 4.8% 34. Colorado 4.0% 34. Missouri 4.4% 34. Connecticut 4.8% 34. Arizona 5.0% 33. Virginia 4.1% 33. Virginia 4.6% 33. Arizona 4.9% 33. Connecticut 5.2% * Tax Rate Gap refers to the difference between the state s effective tax rate (ETR) at $10,000 versus the ETR at the higher income examples shown. For example, Pennsylvania s ETR for married-filing-joint returns at $10,000 is 0.0%, and at $150,000 it is 3.1%. The gap of 3.1% is calculated as $150,000 ETR (3.1%) minus $10,000 ETR (0.0%). The Influence of State Earned Income Tax Credits on Structural Progressivity In tax year 2006, 20 of the 42 states in this study 5 offered a state earned income tax credit, which is a tax reduction and a wage supplement for low income working families. In most cases these state credits are refundable, meaning filers receive the value of the tax credit whether or not the filer owes any income tax often creating negative income tax rates for low-income filers. The negative tax rates that result from the use of the state income tax as an income assistance program significantly influence the structural progressivity of state income taxes as measured by tax rate gaps. The impact can be illustrated by California, which has one of the most progressive income tax structures in the nation based on statutory tax rates. As Table 8 in this report shows, married couples in California earning $35,000 to $100,000 per year rank at or near the bottom in income tax burden, but married couples in that state earning $250,000 or more are in the top ten nationally. However, since California does not offer a state earned income tax credit, the tax rate gap between highest and lowest earning households is not as great as in other states which do provide this credit. Our progressivity rankings would look very different if the base were $35,000 of gross income the point at which state earned income tax credits have generally been phased out (see Table 3). While certain states from Table 1 are also included in Table 3, some states without earned income tax credits emerge as highly progressive, including California. 5 Delaware, District of Columbia, Indiana, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New York, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, and Wisconsin. 8

15 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 3: Ten Most Progressive State Income Tax Systems, Measured by Comparing Effective Tax Rates at Selected Higher Incomes and $35,000 for Married-Joint Returns Married Filing Joint Returns $150,000 vs. $35,000 $250,000 vs. $35,000 $500,000 vs. $35,000 $1,000,000 vs. $35,000 Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* Most Progressive Income Tax States Tax Rate Gap* 1. New York 5.8% 1. New York 6.6% 1. California 8.1% 1. California 8.9% 2. Maine 4.9% 2. California 6.3% 2. New York 6.8% 2. New York 7.2% 3. Idaho 4.6% 3. Maine 5.8% 3. Maine 6.5% 3. Vermont 7.1% 4. California 4.2% 4. Idaho 5.4% 4. Vermont 6.5% 4. Maine 7.0% 5. South Carolina 4.1% 5. Vermont 5.1% 5. Idaho 6.1% 5. Idaho 6.4% 6. Minnesota 4.0% 6. Nebraska 4.8% 6. Rhode Island 5.6% 6. Minnesota 6.2% 7. Connecticut 3.9% 7. Minnesota 4.7% 7. Minnesota 5.6% 7. Rhode Island 5.9% 8. North Carolina 3.9% 8. South Carolina 4.7% 8. South Carolina 5.4% 8. South Carolina 5.6% 9. Nebraska 3.7% 9. Rhode Island 4.4% 9. Nebraska 5.3% 9. Nebraska 5.5% 10. Vermont 3.7% 10. North Carolina 4.3% 10. North Carolina 4.8% 10. New Jersey 5.3% * Tax Rate Gap refers to the difference between the state s effective tax rate (ETR) at $35,000 versus the ETR at the higher income examples shown. For example, Maine s ETR for married-filing-joint returns at $35,000 is 1.2%, and at $150,000 it is 6.1%. The gap of 4.9% is calculated as $150,000 ETR (6.1%) minus $35,000 ETR (1.2%). 9

16 Analysis and Findings State Income Tax Comparison Tables, Tax Year 2006 Liabilities Table 4: Tax Year 2006 Income Tax Burdens for Married-Joint Filers* $10,000 $20,000 $35,000 $50,000 $75,000 STATE Tax Tax Tax Tax Tax Alabama $156 2 $540 1 $1,290 6 $1, $2, Arizona (100) 25 (100) , Arkansas , , California Colorado , , Connecticut , Delaware , District of Columbia (1,329) 40 (800) 39 1, , ,833 2 Georgia (32) , , Hawaii (49) , , , Idaho (70) 24 (70) , ,277 9 Illinois (140) , , Indiana (107) , , , Iowa , , , Kansas (899) 38 (554) , , Kentucky , , ,357 7 Louisiana , , Maine , ,294 8 Maryland (798) 36 (533) , ,791 3 Massachusetts (599) 34 (574) , , Michigan (602) , , Minnesota (998) 39 (1,552) , , Mississippi , Missouri , , Montana , , Nebraska (319) 31 (310) , New Jersey (798) , New Mexico (145) 28 (50) , New York (1,397) 41 (1,661) 42 (144) , North Carolina , ,375 6 North Dakota , Ohio , , ,791 4 Oklahoma (340) 32 (59) , , Oregon (200) , , ,261 1 Pennsylvania , , , Rhode Island (150) 29 (145) , South Carolina , , Utah , , Vermont (1,439) 42 (1,239) , Virginia , , West Virginia , , Wisconsin (559) 33 (542) , , State Average $ (262) $ (113) $ 700 $ 1,227 $ 2,696 *2 wage earners, 2 dependents 10

17 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 4 (contd): Tax Year 2006 Income Tax Burdens for Married-Joint Filers* $100,000 $150,000 $250,000 $500,000 $1,000,000 STATE Tax Tax Tax Tax Tax Alabama $3, $4, $7, $15, $31, Arizona 2, , , , , Arkansas 4, , , , , California 2, , , , ,992 1 Colorado 3, , , , , Connecticut 4, , , , , Delaware 3, , , , , District of Columbia 5, , , , ,725 5 Georgia 3, , , , , Hawaii 4, , , , , Idaho 4, , , , ,866 8 Illinois 2, , , , , Indiana 4, , , , , Iowa 4, , , , , Kansas 4, , , , , Kentucky 4, , , , , Louisiana 3, , , , , Maine 5, , , , ,108 4 Maryland 5, , , , , Massachusetts 4, , , , , Michigan 3, , , , , Minnesota 4, , , , ,743 9 Mississippi 3, , , , , Missouri 3, , , , , Montana 3, , , , , Nebraska 4, , , , , New Jersey 2, , , , , New Mexico 3, , , , , New York 3, , , , , North Carolina 6, , , , ,141 6 North Dakota 1, , , , , Ohio 5, , , , ,919 3 Oklahoma 4, , , , , Oregon 6, , , , ,176 2 Pennsylvania 3, , , , , Rhode Island 1, , , , , South Carolina 4, , , , , Utah 4, , , , , Vermont 3, , , , ,279 7 Virginia 4, , , , , West Virginia 4, , , , , Wisconsin 5, , , , , State Average $ 4,048 $ 6,904 $ 12,987 $ 28,600 $ 60,085 *2 wage earners, 2 dependents 11

18 Analysis and Findings Table 5: Tax Year 2006 Income Tax Burdens for Head of Household Filers* $10,000 $20,000 $35,000 $50,000 STATE Tax Tax Tax Tax Alabama $195 2 $695 5 $1, $1, Arizona (75) Arkansas , , California Colorado , Connecticut , Delaware , , District of Columbia (826) 40 (11) 36 1, ,257 8 Georgia , , Hawaii , , Idaho (30) , ,210 9 Illinois , Indiana , , Iowa , , Kansas (637) 38 (92) 39 1, , Kentucky , ,310 6 Louisiana , , Maine , ,263 7 Maryland (491) , ,666 2 Massachusetts (412) , , Michigan (492) , , Minnesota (687) 39 (373) 40 1, , Mississippi , Missouri , , Montana , , Nebraska (220) , New Jersey (549) New Mexico (95) 29 (16) , New York (931) 41 (565) , North Carolina , ,365 5 North Dakota Ohio , ,528 4 Oklahoma (177) , , Oregon (76) , ,792 1 Pennsylvania , , Rhode Island (103) 30 (39) , South Carolina , , Utah , , Vermont (1,041) 42 (403) , Virginia , , West Virginia , , Wisconsin (110) , , State Average $ (143) $ 245 $ 1,134 $1,822 * 1 dependent 12

19 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 5 (contd): Tax Year 2006 Income Tax Burdens for Head of Household Filers* $75,000 $100,000 STATE Tax Tax Alabama $2, $3, Arizona 1, , Arkansas 3, ,219 9 California 1, , Colorado 2, , Connecticut 3, , Delaware 2, , District of Columbia 3, ,752 5 Georgia 2, , Hawaii 3, , Idaho 3, ,510 8 Illinois 2, , Indiana 3, , Iowa 3, , Kansas 3, , Kentucky 3, , Louisiana 3, , Maine 4, ,966 3 Maryland 4, ,928 4 Massachusetts 3, , Michigan 2, , Minnesota 3, , Mississippi 2, , Missouri 2, , Montana 3, , Nebraska 3, , New Jersey 1, , New Mexico 2, , New York 3, , North Carolina 3, ,750 6 North Dakota 1, , Ohio 4, ,026 2 Oklahoma 3, , Oregon 4, ,461 1 Pennsylvania 2, , Rhode Island 1, , South Carolina 3, , Utah 3, , Vermont 2, , Virginia 3, , West Virginia 3, , Wisconsin 4, , State Average $ 3,037 $ 4,432 * 1 dependent 13

20 Analysis and Findings Table 6: Tax Year 2006 Income Tax Burdens for Single Filers* $10,000 $20,000 $35,000 $50,000 $75,000 STATE Tax Tax Tax Tax Tax Alabama $277 5 $ $1, $1, $2, Arizona , , Arkansas , , , California , , Colorado , , , Connecticut , , , Delaware , , , District of Columbia , , ,488 5 Georgia , , , Hawaii , , ,125 9 Idaho , , ,592 4 Illinois , , Indiana , , , Iowa , , , Kansas , , , Kentucky , , , Louisiana (406) 42 1, , , Maine , , ,810 2 Maryland , , , ,665 3 Massachusetts , , , Michigan (340) , , , Minnesota , , , Mississippi , , , Missouri , , , Montana , , , Nebraska , , , New Jersey , , New Mexico (65) , , , New York , , , North Carolina , , ,420 6 North Dakota , Ohio , , ,305 8 Oklahoma , , , Oregon , , , ,077 1 Pennsylvania , , , Rhode Island , , South Carolina , , , Utah , , , Vermont (158) , , Virginia , , , West Virginia , , , Wisconsin , , , State Average $107 $573 $1,415 $2,078 $3,452 * No dependents 14

21 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 6 (contd): Tax Year 2006 Income Tax Burdens for Single Filers* $100,000 $150,000 $250,000 STATE Tax Tax Tax Alabama $3, $4, $7, Arizona 3, , , Arkansas 5, , , California 5, , ,761 2 Colorado 3, , , Connecticut 4, , , Delaware 4, , , District of Columbia 6, , ,243 5 Georgia 4, , , Hawaii 5, , , Idaho 6, , ,701 7 Illinois 2, , , Indiana 4, , , Iowa 4, , , Kansas 5, , , Kentucky 5, , , Louisiana 4, , , Maine 6, , ,072 3 Maryland 6, , ,593 8 Massachusetts 4, , , Michigan 3, , , Minnesota 5, , ,250 9 Mississippi 3, , , Missouri 4, , , Montana 5, , , Nebraska 5, , , New Jersey 4, , , New Mexico 3, , , New York 5, , , North Carolina 6, , ,976 6 North Dakota 2, , , Ohio 6, , ,813 4 Oklahoma 4, , , Oregon 7, , ,011 1 Pennsylvania 3, , , Rhode Island 2, , , South Carolina 5, , , Utah 5, , , Vermont 4, , , Virginia 4, , , West Virginia 5, , , Wisconsin 5, , , State Average $4,880 $7,793 $14,024 * No dependents 15

22 Analysis and Findings Table 7: Tax Year 2006 Income Tax Burdens for Married-Joint Senior Filers* $10,000 $20,000 $35,000 $50,000 STATE Tax Tax Tax Tax Alabama $180 2 $565 4 $1,004 6 $1, Arizona (50) Arkansas (40) California Colorado Connecticut Delaware District of Columbia , ,713 3 Georgia (48) Hawaii (47) Idaho (60) 40 (42) , Illinois Indiana , ,542 7 Iowa Kansas (150) ,556 6 Kentucky Louisiana Maine , Maryland Massachusetts , ,587 5 Michigan Minnesota ,683 4 Mississippi Missouri Montana , Nebraska ,388 9 New Jersey New Mexico , New York North Carolina , North Dakota Ohio , Oklahoma (76) Oregon , ,945 2 Pennsylvania Rhode Island , South Carolina Utah ,443 8 Vermont , Virginia West Virginia , Wisconsin , , State Average $ 4 $162 $455 $861 * No dependents, filers aged 65 or older. 16

23 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Comparison of Tax Year 2003 and Tax Year 2006 Results The following table compares the results from our previous (tax year 2003) study with the results from our current (tax year 2006) study on a state-specific basis. Astute readers may notice that net taxes often decline from the previous study see our FAQ section for information regarding this phenomenon. 17

24 Analysis and Findings Table 8: Comparison of Tax Year 2003 and Tax Year 2006 and Net Tax, by State, Filing Status, and Gross Income [The nationwide average net tax equals 100.0] FILING STATUS GROSS INCOME ALABAMA ARIZONA ARKANSAS Single $10, Single $20, Single $35, Single $50, Single $75, Single $100, Single $150, Single $250, Married $10, * * * * 5 5 * * Married $20, * * * * 4 6 * * Married $35, Married $50, Married $75, Married $100, Married $150, Married $250, Married $500, Married $1,000, HHouse $10, * * * * * * HHouse $20, Hhouse $35, Hhouse $50, Hhouse $75, Hhouse $100, Senior $10, * * * * 6 36 * * Senior $20, NA Senior $35, Senior $50, * Net taxes as a percent of average are not calculated for lower incomes in which the U.S. average taxes are less than $50 because resulting percentage comparisons to national averages can be misleading. NA: Not applicable, since net state tax is negative largely due to state earned income tax credit program benefits. Result of 0.0 indicates no net state tax liability. 18

25 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 8 (contd): Comparison of Tax Year 2003 and Tax Year 2006 and Net Tax, by State, Filing Status, and Gross Income [The nationwide average net tax equals 100.0] FILING STATUS GROSS INCOME CALIFORNIA COLORADO CONNECTICUT Single $10, Single $20, Single $35, Single $50, Single $75, Single $100, Single $150, Single $250, Married $10, * * 5 5 * * 5 5 * * Married $20, * * * * * * Married $35, Married $50, Married $75, Married $100, Married $150, Married $250, Married $500, Married $1,000, HHouse $10, NA * NA * NA * HHouse $20, HHouse $35, HHouse $50, HHouse $75, HHouse $100, Senior $10, * * 6 6 * * 6 6 * * Senior $20, Senior $35, Senior $50, * Net taxes as a percent of average are not calculated for lower incomes in which the U.S. average taxes are less than $50 because resulting percentage comparisons to national averages can be misleading. NA: Not applicable, since net state tax is negative largely due to state earned income tax credit program benefits. Result of 0.0 indicates no net state tax liability. 19

26 Analysis and Findings Table 8 (contd): Comparison of Tax Year 2003 and Tax Year 2006 and Net Tax, by State, Filing Status, and Gross Income [The nationwide average net tax equals 100.0] FILING STATUS GROSS INCOME DELAWARE DISTRICT OF COLUMBIA GEORGIA Single $10, Single $20, Single $35, Single $50, Single $75, Single $100, Single $150, Single $250, Married $10, * * * * * * Married $20, * * * * * * Married $35, Married $50, Married $75, Married $100, Married $150, Married $250, Married $500, Married $1,000, HHouse $10, * * * * 8 9 * * HHouse $20, NA HHouse $35, HHouse $50, HHouse $75, HHouse $100, Senior $10, * * 6 6 * * * * Senior $20, Senior $35, Senior $50, * Net taxes as a percent of average are not calculated for lower incomes in which the U.S. average taxes are less than $50 because resulting percentage comparisons to national averages can be misleading. NA: Not applicable, since net state tax is negative largely due to state earned income tax credit program benefits. Result of 0.0 indicates no net state tax liability. 20

27 Tax Year 2006 Individual Income Tax Burdens National Taxpayers Conference Table 8 (contd): Comparison of Tax Year 2003 and Tax Year 2006 and Net Tax, by State, Filing Status, and Gross Income [The nationwide average net tax equals 100.0] FILING STATUS GROSS INCOME HAWAII IDAHO ILLINOIS Single $10, Single $20, Single $35, Single $50, Single $75, Single $100, Single $150, Single $250, Married $10, * * * * * * Married $20, * * * * * * Married $35, Married $50, Married $75, Married $100, Married $150, Married $250, Married $500, Married $1,000, HHouse $10, * * * * 7 7 * * HHouse $20, HHouse $35, HHouse $50, HHouse $75, HHouse $100, Senior $10, * * * * 6 4 * * Senior $20, NA NA Senior $35, Senior $50, * Net taxes as a percent of average are not calculated for lower incomes in which the U.S. average taxes are less than $50 because resulting percentage comparisons to national averages can be misleading. NA: Not applicable, since net state tax is negative largely due to state earned income tax credit program benefits. Result of 0.0 indicates no net state tax liability. 21