“If you can go without one of the major tax categories, not only do you have one less tool to distort the economy, but you’re also getting rid of a ton of overhead costs,” said Scott Drenkard, a Tax Foundation economist who co-authored the study. “You’re also able to get rid of the dead weight cost on the private side, where people are trying to comply with those taxes.”
Alaska, Florida, Nevada, South Dakota, Washington and Wyoming, all states in the Tax Foundation’s top 10, have no personal income tax. New Hampshire and Alaska have no sales tax.
Utah and Indiana, which place ninth and tenth in this year’s rankings, tax across all major revenue streams, but their rates are low across the board. Indiana, where the legislature cut taxes under former Gov. Mitch Daniels (R), displaced Texas in the top 10.
Texas Gov. Rick Perry (R) has cited the Tax Foundation rankings on trips to Democratic-run states like Illinois and Maryland, on which he tries to recruit businesses to move to the Lone Star State. Texas dropped a spot in the rankings, Drenkard said, because of the Texas margin tax, a tax on gross receipts. Michigan, Kentucky and New Jersey have eliminated gross receipts taxes in recent years, and some Texas legislators want to follow suit.
Northeastern states dominate the bottom 10, thanks to higher taxes on corporations and complicated tax codes. New York came in last place, while Rhode Island, Vermont, Connecticut, New Jersey and Maryland all fell in the bottom 10. California, Wisconsin, North Carolina and Minnesota all have tax rates high enough to qualify for the bottom 10.
Expect the Republican Governors Association to celebrate the rankings: Seven of the top 10 states are run by Republican governors, while seven of the bottom 10 states are run by Democrats.
The rankings won’t stay static next year. Drenkard said a package of tax reforms signed by Gov. Pat McCrory (R) earlier this year will move North Carolina out of the bottom 10; had those tax rules been in effect by the July 1 beginning of the fiscal year, North Carolina would have qualified for 17th place on the list.