The Tax Foundation released their most recent analysis of taxes from state to state. Ohio jumped from 14 to 3 in terms of relative taxation. Only NY and Maine have higher taxes.

Could this situation be contributing to our precipitous decline?


New Data Show
How Your State
Ranks in Taxes

Major Increases Shift Assessment
Of Where Burdens Are Lowest;
Ohio Jumps to Third Highest
By NANCY KEATES
Staff Reporter of THE WALL STREET JOURNAL
April 8, 2004; Page D1

When Eloise Warfel retired last year, she and her husband started to think about where they wanted to live for the rest of their lives. Her heart led to Mississippi, where a daughter lives, but Tennessee seemed a better choice, given its reputation as a tax haven.

So when Tennessee raised its sales tax last year -- making Ms. Warfel, 61 years old, worry that big-ticket items, such as a car, would be too expensive -- she was almost happy about it. "We could no longer see the benefit of living there," she says. She and her husband now plan on moving to Mississippi.

As many states close their budget gaps by raising taxes, an important factor in the calculus of where to live is shifting, particularly for retirees or people with an option of choosing between neighboring states. In the past year, 20 states raised taxes significantly in one way or another. That comes on top of significant tax increases by 18 states in 2002, the first such raises at this level in almost a decade.

All of this activity has caused major changes in the rankings of state-tax burdens, according to a study released yesterday by the Tax Foundation, a conservative-leaning Washington, D.C., research group. The foundation ranks states from one (highest tax burden) to 50 (lowest burden), based on income, sales, property and other state and local tax-collection data, culled from, among other sources, the Commerce Department and projections from the Congressional Budget Office.

Some states, such as Alaska, are perennial low-tax havens. Others have moved significantly in the rankings in recent years. Partly because of a controversial sales-tax increase last year to 6% from 5% -- as well as cigarette and motor-fuel tax increases -- Ohio jumped to the No. 3 spot in 2004 from No. 14 in 1999.

On the high end, New York ranked as the least tax-friendly state -- residents pay an average of 12.9% of income in all state and local taxes -- and Maine came next, with residents paying 12.3% of their income in state and local taxes. (If it were a state, Washington, D.C., would have earned second place on this year's tally.)

Of course, most people don't base where they live on taxes alone. Family, work and climate are the most important factors. And most of the states' increases followed cuts during the 1990s, when state coffers were flush with cash from a booming economy. But every year approximately one in seven Americans changes residences, according to the U.S. Census Bureau, and tax advisers and real-estate agents agree that taxes are becoming more of a consideration.

Retirees and soon-to-be retirees are increasingly interested in tax changes, says E. Thomas Wetzel, president of the Retirement Living Information Center Inc., in Redding, Conn. As a result, the center now lists up-to-date state-tax data on its Web site.

Sometimes it's not policy changes alone that cause states to move in the rankings. Take California, which fell to a midrange No. 26 on this year's survey from No. 11 in 1999. One reason for the state's lower ranking this year is that it chose to borrow heavily instead of raising taxes to plug its budget gap, says the Tax Foundation's Bill Ahern. The other reason: The technology bust hit California harder than just about anywhere else -- and drastically reduced capital-gains and income tax collections there.

Other notable changes include Idaho, whose one-percentage-point sales tax increase in 2003 helped cause it to jump up eight places to No. 11 from 2002. And a half-point hike in personal-income-tax rates for the top bracket last year helped move Connecticut to No. 9 this year from No. 12 two years ago.

Iowa, conversely, has chosen to cut spending instead of raising taxes; in fact, the state continues to enact tax cuts that were legislated before the state's recent fiscal downturn. This has helped it move down to No. 27 from No. 18 in 2002.

States that are conspicuously keeping their taxes low are attracting more interest. Real-estate agents in New Mexico are ecstatic about the recent personal-income-tax cut that has helped keep the state out of the top 20 for the past two years. "I think it's making a big difference" in attracting buyers, says Nick French, who manages Sotheby's International Realty in Santa Fe.

It did for Julie and Jerome Miller, a homemaker and health consultant, respectively. While they say lifestyle is the main reason they plan to move to New Mexico from California this May, Mrs. Miller, 42, says New Mexico's lower rates sweetened the decision, because the couple had been hit so hard by property-tax increases in California. "If it had been the opposite, and the taxes were higher in New Mexico, we wouldn't be moving," she says.

Yet figuring out the best state to live in for tax reasons can be even more complicated than doing your own tax return. States, cities and other municipalities have a wide range of taxes, fees and other levies that make comparisons tricky, which makes your personal situation all the more important when weighing the advantages of one state over another. How vulnerable are you to a high income tax? Is avoiding an estate tax an important concern? How much will you be affected by high property taxes?

John Farber says he never would decide where to live based primarily on taxes, but when the 48-year-old entrepreneur moved recently to Rhode Island from New York, he was surprised with the tax increases that followed him there, making the cost of living in his new domain higher than he expected. As a result, he already is eyeing next-door Massachusetts -- once nicknamed "Taxachusetts," but now ranked a respectable No. 36 on the Tax Foundation's list. (Credit the lower income and property tax rates the state enacted years ago.) "Anyone confronted with the difference would have to consider it," he says. "It's part of the calculus."

Write to Nancy Keates at nancy.keates@wsj.com



The tax burden that the following individual would pay in the 43 states that impose an income tax: A married man who makes $150,000 a year. His wife doesn't work, he has a 15-year mortgage at 6% on a house valued at $600,000, he owns two cars, he has two kids in elementary school, and he has invested $100,000 in mutual fund.
Taxing Authority Taxable Income Tax Liability
Internal Revenue $94,439 $16,845
Arizona $95,739 $3,245
Arkansas $113,047 $7,299
California $112,843 $5,984
Colorado $101,110 $4,681
Connecticut $157,423 $7,331
Delaware $113,310 $5,675
District of Columbia $107,830 $9,238
Georgia $101,216 $5,813
Hawaii $103,664 $7,297
Idaho $101,111 $7,338
Illinois $149,423 $4,483
Indiana $150,423 $6,994
Iowa $96,096 $7,004
Kansas $104,310 $5,783
Kentucky $135,256 $7,855
Louisiana $140,578 $6,708
Maine $101,910 $7,516
Maryland $102,510 $7,995
Massachusetts $138,343 $7,389
Michigan $143,823 $5,753
Minnesota $101,181 $7,560
Mississippi $98,310 $4,717
Missouri $89,105 $5,044
Montana $89,586 $7,632
Nebraska $114,635 $6,393
New Hampshire $(1,008) 0
New Jersey $152,423 $5,667
New Mexico $93,439 $5,700
New York $111,310 $7,625
North Carolina $105,310 $7,199
North Dakota $94,115 $2,826
Ohio $152,423 $8,143
Oklahoma $85,594 $6,456
Oregon $109,053 $9,492
Pennsylvania $157,423 $4,408
Rhode Island $94,439 $5,047
South Carolina $100,635 $6,687
Tennessee $2,372 $142
Utah $95,735 $6,460
Vermont $94,007 $5,061
Virginia $110,114 $6,013
West Virgina $149,423 $8,587
Wisconsin $153,975 $7,726