TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, April 27, 2014

States With the Best and Worst Taxpayer Return on Investment

ROIWallet Hub, States with the Best & Worst Taxpayer ROI:

There is an obvious disconnect in the minds of taxpayers between the amount we fork over each April and what we ultimately receive from the government in return.  Tax Day is a tangible, painful reminder of our investments in federal, state and local governments, but it’s difficult to discern the government’s precise role in our day-to-day quality of life and overall pursuit of happiness.  Perhaps that’s why 52% of people feel they pay too much in taxes and most people think roughly half of their tax dollars are being wasted.

One thing we do know is that taxpayer return on investment varies significantly based on simple geography.  Federal income tax rates are uniform across the country, yet some states get far more federal funding than others – as WalletHub recently illustrated in its Federal Government Dependency Report.  But federal taxes and funding are only part of the story.

Ideological differences regarding the role of local taxation have resulted in citizens of each state shouldering dramatically different tax burdens.  This, of course, begs the question of whether people in high-tax states benefit from correspondingly superior government services or if low-tax states are more efficient.  In short, where do taxpayers get the most and least bang for their buck?

WalletHub sought to answer that question by contrasting state and local tax rates to the quality of the services that are funded at those levels, which we separated into six main categories – Infrastructure, Education, Health, Safety, Economy and Pollution – that collectively consist of 27 metrics.




Tax Rank

Gov't Services Rank

1 Wyoming 1 13
2 Alaska 2 26
3 South Dakota 5 15
4 Washington 6 10
5 North Dakota 9 14
6 Colorado 10 11
T-7 Florida 4 36
T-7 Texas 7 24
9 Utah 14 5
10 Massachusetts 21 7
42 Kentucky 30 41
43 Alabama 12 48
T-44 California 50 38
T-44 Tennessee 25 45
46 West Virginia 18 47
47 North Carolina 35 43
48 District of Columbia 37 44
49 Louisiana 17 49
50 Mississippi 15 51
51 Arkansas 31 50

(Hat Tip: The Fiscal Times.)

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That's a dubious chart. It classifies every state as either D or R, forgetting that some swing while others are solidly in one camp or the other. Shading might be more apt.

And having lived in Washington until last August, I question whether it ranks as having the sixth lowest taxes. Yes, it doesn't have an income tax. But there's a hefty business and professional tax on gross income that raises the price of everything.

Also, how you you rank government services? In one state, fish and game might matter a lot to locals. In another, it matters not at all.

Finally, California seems to be treated with kid gloves. 50th in taxes and 38th in services gives it a total of 88 in bad. And yet it is placed well above Mississippi whose 15th and 51st gives it a total of just 66. And is Massachusetts really on 21st in taxes or Utah 5th in government services? The former may have some taxes missed and the latter's Mormon population probably takes care of most problems themselves rather than looking to government.

Posted by: Michael W. Perry | Apr 27, 2014 2:40:28 PM

The list shows South Dakota third best but the numbers are for Tennessee...what's up with that?

Posted by: axelhose | Apr 27, 2014 11:23:29 PM

It seems to me that these numbers are deeply flawed, because (unless I misinterpret their "methodology" section) the study treats grant money received by the state the same as contract dollars received by state resident contractors. Receiving a $100 grant is totally different than selling $100 of goods and services to the federal government. If this isn't treated correctly, the numbers are bogus, particularly for states like California with a large amount of government contracts.

Posted by: Dave Anderson | Apr 28, 2014 12:43:24 PM