High-taxing states and debt

October 10, 2012

The Tax Foundation named names in a new report that details the states that have the heaviest tax structures. The report compiled personal and corporate income tax, sales tax, unemployment insurance and property tax rates, and it used this data to rank states by their tax burdens. The Tax Foundation describes the purpose of the effort:

State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare.

Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax.

I wondered if high taxing states also had high debt loads. In 2011, Moodys published debt load data by state, and I pulled the numbers for the ten highest-taxing states. You can see the results in the chart above.

State debt loads vary from Iowa’s 0.7% debt as percent of personal income to New Jersey’s 7.9% debt load. High debt load states Rhode Island, New Jersey, New York and California are also on the high tax list, but other states like Iowa and Vermont, with relatively light debt loads, also rank high for taxes. States with low debt loads would have more flexibility and would be better positioned to reduce their budgets if the economy slowed again.

Illinois does not appear on the list of highest taxing states, and it has a high debt load of 5.7% of gross personal income. As Illinois, with their massively unfunded pension liabilities, wrestles with paying more into its pension system, it will be interesting to see if it appears on this list in the future.

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