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Posts Tagged ‘State income tax

The Most Economicly Sensible Place to Live in America

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In a troubled economy, the worry of many people has increasingly bottled down to the cost of living. It’s easy to understand why more families worry about their personal economy and the cost of living in USA today. As the federal government and states likewise spend more money than they have, there is an increasing demand from government for higher taxes … on everything. Where, then, is the cheapest – or should I say the most economicly sensible place to live in America today? Of course, it’s quite difficult to point out a specific town, as you’d be in a deep ditch of falsification, while working out every little detail in every little part of this vast country. But we need to start somewhere!

For now we’ll limit our search to the different states. This takes down the number of choices to a mere 50. Along which criterias will these 50 states be messured? Taxes, of course, and here we will look at the state income taxes, but there are also some hidden taxes in addition, like sales and property taxes, so we’ll also compare some specific price differences. For this I will make use of numbers from a “cost of living index” put together by MERIC (Missouri Economic Research and Information Center), which are based on values that are reported from different urban areas that participate in the collection of data. This does not give us a proper indication of the rural differences that may exist, but it’s reasonable to think that rural areas in a state with low average urban living costs will have lower living costs than in a state with high average urban living costs, since overall sales and property taxes levels in the states play a part here. It does seem, however, that MERIC do not include income taxes levels into the calculations, although it could be put into consideration for all the different values making up the index, but either way we will take a look at the index numbers and tax levels seperately.

To start off our research we’ll see where in America a married couple sharing an income of $40,000 (as basis for our income  tax levels) will have the greatest opportunity to put off some extra hard earned money for buying affordable precious metals to preserve their precious savings *wink wink*. We are therefore trying to aim this at the regular working class American that wish to focus on affordable quality of life. People more well off would likely live according to similar dimensions, only with a lot more to spend, and truly, that is what we’re all after.

The top states in the MERIC index are situated mostly in the midwestern/southern area of America. We will look at the states that have an average index score under 95, where 100 is the overall USA average. These states are the following (in the order from lowest to highest index score):

Tennessee, Kentucky, Oklahoma, Kansas, Missouri, Texas, Arkansas, Nebraska, Idaho, Georgia, Mississippi, Alabama, Iowa, Indiana, Ohio and Michigan.

These have the cheapest living costs, but what are the income tax level in these states? This is important, since taxes can take up such a substantial portion of your pay check. This can weed out some states that are more likely candidates than others. Not bothering with federal taxes, as these are the same everywhere, we instantly take notice of the states without a state income tax:

Map of USA showing states with no state income...

States without personal income tax (Wikipedia)

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

We see that Tennessee and Texas instantly stick out as states with both low costs and no taxes. Indeed, Texas has always been known to be a cheap “tax haven”, but Tennessee is a surprise. After all, it has the highest minimum sales tax of most states, and likely on an average to have the highest of them all. When adding the level of taxes we’d have to pay in the other 14 states, this is the list we end up with:

Alabama 5%, Arkansas 7%, Georgia 6%, Idaho 7.4%, Indiana 3.4%, Iowa 6.8%, Kansas 6.25%, Kentucky 5.8%, Michigan 4.35%, Mississippi 5%, Missouri 6%, Nebraska 5.12%, Ohio 4.109%, Oklahoma 5.5%, Tennessee 0% and Texas 0%.

Certainly, these levels are all quite affordable. Simply depending on the housing prices or food prices you could save much more during a year than what you’d pay in taxes. Idaho, with the highest tax of the mentioned states, will cost you $2,960 a year, but with the third lowest rating for housing costs it could potentially make up for it manyfolds. What we see about Idaho is that transportation costs are above average, likely because of a low population spread out on a large area. Kansas, placed in the very center of the country, and with a close proximity to Kansas City in the east, can boast of fairly low scores all over, with groceries, housing and utilities well under 90 and health care at only 91.65, which should make up for its income tax. It is no wonder why MERIC lists it as the 4th cheapest state in the country. Important to note is that Kansas is also one of the leading agricultural states in the nation, which will arguably be a huge strength in the future of the overall American economy. In addition, Kansas – even now after the recession began – has an unemployment rate of 6.6%. This is of course the Department of Labor’s own numbers, which frankly can be somewhat understated, but it still gives us a number we can compare with. It’s substantially better than Idaho’s 9%, for instance, and adds a level of social safety and stability to your cheap living. Also better than Idaho are Oklahoma and Arkansas, with 6.9% and 7.7% respectively. Worse off is Missouri with 9.3%.

The zero tax states are also under 10%, but still substantially higher than Kansas. Tennessee has 9.4% and Texas 8.1%. Tennessee is overall pretty much the same kind of state as Kansas, but with higher unemployment rate and a slightly lower cost index. It’s important to note that the cost index difference is only by a margin of 1.44 points, which is caused by the difference in housing costs, however both are far lower than the national average.

Texas, however, is unique in the grand scheme of things. It’s known to be among the most business friendly states in America and it’s also the second biggest economy in America, being among the biggest producers of agricultural and mining goods, while also having a very strong industry in energy and technology. With the 6th lowest overall living costs, no income tax and a fairly low unemployment rate Texas comes out as a remarkably good choice. It is, however, the second most populous state, and with a lot of open desertlands in the west the population density is quite high around the urban areas to the east. This doesn’t have to matter at all, but when one would make the choice of where to live it could be a deciding factor. Needless to say, Texas would leave you with the choice of both extremes and little inbetween, but that might be perfect for you.

Cost of Living Index (MERIC)

So what should you choose? Indeed, any of the low value states is a good choice, but it is important to take into consideration future economic and social stability. You’d do well in staying away from the rust belt, which would steer you away from the north eastern “green states”, as shown on the Cost of Living Index map. The unemployment rate there is currently quite high, as it is among all the states east of Arkansas. Iowa, like Texas, comes out of it in a different way than most other states. As a mostly manufacturing state, with a notable addition of agruculture, it has so far weathered the economic downturns a lot better than most other states. It can with an unemployment rate of 6.8% also offer something in terms of social stability. Nebraska with its agrictultural economy has matched Iowa’s ability to weather the economic turmoil, but with likely the lowest unemployment rate in America with 4.6%.

In terms of these findings we are left with the states that are at the very centre of the country: Arkansas, Kansas, Iowa, Missouri, Nebraska, Oklahoma and Texas. Missouri stand as the state in the weakest economic condition in terms of unemployment rate out of these. It is funny to note how the strongest economic base is in the agricultural states farthest away from the most expensive parts of the country, and arguably farthest away from the parts that are currently in the worst shape, where DC and California lead off as the sunken ships with the highest living costs in the country.

What do I think? There are two things that will affect my choice of where to live among these states. Anti-union legislations and “livability”, where social variables create the safest and most stable living conditions. Why? If I wanna look for jobs for myself and my loved ones, I want a fair game, and if I wish to bring up a family I also want the best surroundings and opportunities for myself and my loved ones. To evalute this I take a look at data in the “livability index“, published by Morgan Quitno Press. Not having the numbers from 2010 I’ll have to assume that the 2005 levels are somewhat the same. What we can see is that several of the mentioned states actually come off quite poorly here, ending up at the bottom of the scale, leaving us with only Missouri, Kansas, Nebraska and Iowa above the national livability index average, but Missouri can instantly be counted out lacking a right-to-work law and also having the highest unemployment rate of the four.

What we’re left with is Kansas, Nebraska and Iowa, which are all above average states with among the cheapest living costs in the nation. The states are also neatly placed in the middle of the country with possibilities of both highly populated urban areas and vast rural areas. I also like the central location of the states in terms of vacations and road trips. I’m an avid traveler and enjoy driving on trips if I have the money and opportunity to do so. The weakness of these states basically lies in the income taxes, but the income taxes are along the middle of the spectrum in America, yet the economies are among the strongest as far as these numbers go. They rely on mild and diverse tax revenues, which doesn’t milk the population too much. The less the better, yes, but all things considered it’s not your worst bet. Further research would include proportion of population in public sector jobs and size of government in terms of expenditure compared to the private sector. Lower numbers for the public sector would be better, of course. Another important variable would be how friendly they are to private businesses and entrepreneurship. The friendlier the better. I would of course also want to see where in the individual states I would like to live the most, wanting to live in fairly close proximity to an urban centre, without having to endure the higher costs and lower quality of living in the middle of a city. There would be housing rents (or prices) and local taxes to take into consideration for this. Since I’m personally not yet looking for a long term place to live (lacking a visa and all) I’ll hold it for now, but I hope my current findings will help others in the right direction. Happy huntin’!