Tax season is here and, according to a recent report, American families in the nation’s largest cities will be shelling out 15% or more of their income, and that doesn’t even include federal taxes.
The report, released by the Office of Revenue Analysis of the Government of Washington, D.C., reviewed the estimated property, sales, auto and income taxes a family paid in 2011 in the largest city in each state. The differences were stark. A family of three earning $75,000 in Cheyenne, Wy., paid just $2,808, or 3.7% of its income. In Bridgeport, Conn., that same family would have paid $16,105, or 21.5% of its income. Again, this is excluding federal taxes.
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One of the biggest factors in how much a family can expect to pay is the state and local tax rates affecting their city. In Bridgeport, Conn., the effective property tax rate, or how much people pay per $100 of property, is among the highest of the large cities reviewed, and property values are higher, meaning a family earning $100,000 per year can expect to spend $11,299 in property taxes alone.
According to Edward Wyatt, fiscal analyst for the Office of Revenue Analysis, while tax rates are certainly a factor in the tax burden on families, it is more the existence of certain kinds of taxes that determines whether families pay through the nose or barely at all come mid-April.
Personal income tax is one of the key factors. Seven states have no income tax, and six of the 10 cities with the lowest tax burdens are in these states. Two more cities in the bottom 10 — Memphis, N.H., and Manchester, Tenn. — only tax nonwage income, such as dividends and interest. None of the cities with high tax burdens are in income tax-exempt states.
The cities with the highest tax burdens tend to be much larger ones, like New York, Philadelphia and Los Angeles, while the low tax burden cities are smaller and in more rural areas, including Fargo, Anchorage and Cheyenne. Wyatt suggested this may have to do with the cost of running these larger cities, as they have to spend less per capita on programs like social services.
Another interesting trend was that cities with higher tax burdens tended to have higher unemployment, while lower-taxed cities tended to have among the lowest unemployment. While this is often a product of the state economy, in some cases, the city’s rate is much higher than the state. Bridgeport, the city with the highest tax burden among the 51 cities studied, also had the highest unemployment rate, at 11.7% in December. The state of Connecticut’s rate that month was just 8.6%.
Source: 24/7 Wall St.