Healthy Family | Home Safety | Health and Wealth | Relationship Issues | Career Advice | Growing Family
Get the SixWise e-Newsletter FREE!
Google Web
Free Newsletter Subscription
Get the Web's Most trusted & Informative Health, Wealth, Safety & More Newsletter -- FREE!


Share Email to a Friend Print This

The Most and Least Tax-Friendly Places to Live in the USA

The 2006 tax season has just ended and, as usual, Americans have strong feelings about the U.S. tax system. "The majority of U.S. adults say the federal income taxes they pay are "too high," that the federal tax code is complex, and that the U.S. tax system is in need of major changes or a complete overhaul," according to the Tax Foundation's 2007 Annual Survey of U.S. Attitudes on Taxes and Wealth.

tax spending

Wondering how your tax money is spent? The majority of federal income taxes go toward the military, followed by health spending and paying interest on the national debt.

At the federal level, the report found that the estate tax, followed by gasoline taxes and personal income taxes are viewed as the "most unfair" taxes, while at the state and local levels gasoline taxes, followed by local property taxes and motor vehicle taxes earned the most unfair designation.

That said, Americans are paying vastly different amounts for taxes depending on where they live, as states and even cities vary widely on what, and how much, they tax.

Where are Your Tax Dollars Going?

Before we delve into the most tax-friendly (and the least tax-friendly) U.S. regions, it's worth noting exactly where all of your hard-earned money is going.

Income taxes, after all, are the largest single source of revenue to the federal government, accounting for about $1 trillion in 2006 alone, according to the Tax Foundation.

So how are these and other taxes being spent? Here is a breakdown of how total federal funds (to which your income taxes are allocated) were spent in 2005, according to the National Priorities Project (NPP), a non-profit education and advocacy organization:

  • Military: $532.2 billion

  • Health: $377.1 billion

  • Interest Paid on the National Debt: $348.5 billion

  • Income Security: $124 billion

  • Education: $76 billion

  • Veterans' Benefits and Services: $69.1 billion

  • Nutrition: $50.7 billion

  • Housing: $37.9 billion

  • Natural Resources and the Environment: $26.6 billion

  • Job Training: $6.3 billion

  • Other: $217.2 billion (includes international affairs, general science, space and technology, energy, agriculture, commerce and housing credit, transportation, community and regional development, labor and social services, justice, general government, and undistributed offsetting receipts)

How is My Tax Money Broken Down?

If you'd like to break your tax payments down even further, NPP has a calculator to help you do just that. You can input your federal income tax and see how your dollars are being spent. For instance, for someone who paid $15,000 in federal income tax in 2005, here is how that money was spent:

alaska tax friendly state

If you want to pay as little as possible for taxes, you may have to move to Alaska, the country's most tax-friendly state.

  • 28.5% (or $4,275) went to the military

  • 18.7% (or $2,805) went to pay the interest on the debt

  • 20.2% (or $3,030) went to health care

  • 6.6% (or $990) went to income security

  • 4.1% (or $615) went to education

  • 3.7% (or $555) went to benefits for veterans

  • 2.7% (or $405) went to nutrition spending

  • 2% (or $300) went to housing

  • 1.4% (or $210) went to environmental protection

  • 0.3% (or $45) went to job training

  • 11.6% (or $1,740) went to all other expenses

Where are the Most Tax-Friendly, and Least Tax-Friendly, Places to Live?

If you're looking for the most tax-friendly state, the Tax Foundation has found it in their annual report that compares the average citizen's state and local tax burden in every state and the District of Columbia.

The tax burden includes state and local income taxes, property taxes, sales taxes, luxury taxes, fuel taxes and others. For 2006, the most tax-friendly states were:

  • Alaska (6.6% of income goes to pay tax burden)

  • New Hampshire (8.0%)

  • Tennessee (8.5%)

  • Delaware (8.8%)

  • Alabama (8.8%)

Meanwhile, those in the following states were not so lucky, as their locales ranked among the worst places to live, tax-wise:

  • Vermont (14.1%)

  • Maine (14.0%)

  • New York (13.8)

  • Rhode Island (12.7%)

  • Ohio (12.4%)

The city you live in can also make a big difference in the amount of taxes you pay, and some of the best and worst tax cities, cited in a recent article, may surprise you:

Most Tax-Friendly Cities

  • Anchorage, AK (3.5% of income goes to pay city tax burden)

  • Cheyenne, WY (3.7%)

  • Jacksonville, FL (4.2%)

  • Las Vegas, NV (4.8%)

  • Memphis, TN (5.2%)

Least Tax-Friendly Cities

  • Bridgeport, CT (18.6%)

  • Philadelphia, PA (11.8%)

  • Providence, RI (11.1%)

  • New York City, NY (11.1%)

  • Des Moines, IA (10.5%)

Interested to know where your state and city rank overall? Check out's rankings of tax burden by state and by city.

Recommended Reading

Tax Audits: What Signs Make You More Likely to be Audited by the IRS?

How to Get the Greatest Tax Advantages by Donating Money to Charity


The Tax Foundation

National Priorities Project

To get more information about this and other highly important topics, sign up for your free subscription to our weekly "Be Safe, Live Long & Prosper" e-newsletter.

With every issue of the free newsletter, you’ll get access to the insights, products, services, and more that can truly improve your well-being, peace of mind, and therefore your life!

Share Email to a Friend Print This