There is an old saying: the only thing certain in life is death and taxes.
Life expectancy in several countries around the world is on the rise, which is a good thing. But taxes are rising too. You can always trust the government to try to squeeze every penny out of you before you die.
Did you know that where you live can help or hinder your ability to make ends meet?
Location Matters
Location, location, location.
Location applies to more than just housing. “It depends on demographics and individual circumstances”, says Walter Molony of the National Association of Realtors. For those looking for a job, the job is the deciding factor. However, taxes would possibly have some influence on your choice of when you’re retiring.”
A myriad of taxes – property, state, license, local sales tax, inheritance, estate tax, and even excise tax on gasoline – eat away at your disposable income. Weighing the tax landscape against your financial picture lets you stretch your hard-earned dollars.
Not All States Are Created Equally
Some states are better to live in than others. Some states are notorious for hunting for taxes, and these states are typically the most fiscally mismanaged.
Here are just four states that (due to high taxes) you should probably avoid.
Illinois
It’s only a matter of time before Illinois goes bankrupt. It’s inevitable.
I mean, really. This has got to be one of the poorest managed and one of the most corrupt states in the country.
The pension crisis has been brewing for years. In an effort to try to prevent the pension crisis, a trio of economist at the Federal Reserve Bank of Chicago believe raising property taxes is the answer to this problem.
The economists argue that paying off the state’s $129.1 billion in unfunded pension obligations cannot be done with revenue from new taxes, such as a tax on marijuana sales or on financial transactions.
They are proposing a statewide tax of 1 percent of a home’s value. Under their plan, the tax bill on a $500,000 house would go from about $11,600 to $16,600, an increase of $5,000, paid each year for 30 years.
For now, the Fed’s proposal is that homeowners with houses worth $250,000 or more would pay 1 percent more in property taxes.
What these geniuses fail to recognize is how this impacts you when you attempt to sell your home.
If you paid $100,000 in 1968 and sell it for $200,000 today and paid $2,500 on average per year for the past 50 years, you paid $125,000 in property taxes. After all that, the State and the Feds want their tax on the $100,000 profit since they do not count the taxes paid.
How is this a good deal? It’s not.
Illinois already has a net migration out of the state.
That means property values will DECLINE and the tax burden will increase on those left behind.
Property taxes in the 3.5-5% level will devastate home values. The average person cannot afford those types of taxes on top of sales taxes, incomes taxes (state & federal) and expect to have any kind of reasonable life.
If you can’t pay the property tax, the State will confiscate your home and sell it for taxes at whatever price it brings.
California
California is in the top-10 states where companies are leaving. With State Income Tax over 13 percent, this should not be a surprise.
Not only are companies leaving, but people are leaving too.
Californians are simply fed up with high housing costs and taxes and are fleeing the state in big numbers by moving to lower costs states such as Arizona, Texas, and Nevada.
When companies and people leave the state, the local government is unable to meet its tax revenue target. This results in larger deficits.
Inevitably, the State must respond by raising taxes on the people that stay.
New Jersey
New Jersey is another state in crisis.
The state is horribly mismanaged.
New Jersey has the lowest credit rating of any state, except one – and has one of the worst-funded pension systems in the nation.
Based on reasonable projections of future revenue growth and future spending, the gap in the state budget will reach between $3.2 billion and $4 billion in the next few years — principally driven by increasing pension and health costs. These numbers assume no economic slowdown. If the economy stumbles the situation is worse.
Already one of the highest taxed states, if things get worse, just like California, New Jersey will have to increase taxes even more.
Now, the State wants to tax RAINFALL.
If you own a building with a large, paved surface (like a driveway or parking lot), the state wants to tax you because your property is responsible for stormwater runoff.
With the state in such a miserable fiscal condition and the ridiculous hunt for taxes, it’s no wonder that more people are leaving New Jersey than arriving.
New York
New York is in big trouble because the city and state are broke. The city’s pension is underfunded by about $70 billion. The city government runs a multi-billion dollar budget deficit each year.
Just a few weeks ago, New York City officials announced that tax revenues so far this fiscal year were $500 million below forecast.
NYC is already one of the most expensive and highest-taxed cities in the country (and 50% of the city’s taxes are currently paid by 1% of the population).
Now, Mayor Bill de Blasio wants the rich to pay even more.
However, just like I said in a previous post, there is a tipping point when the rich will leave.
Even New York Governor Andrew Cuomo recently alluded to this in a press conference.
“There is a tipping point where people say, ‘I love New York, but to spend another $300,000 on taxes? I’ll move.’”
But the rich are already flocking in droves… since 2007, New York and California lost 2.2 million residents to lower-tax states. And the pace is accelerating (one economic group expects them to lose another 800,000 residents in the next three years).
Conclusion
Where you live can have a big impact on how much discretionary income you have after paying your bills. It also greatly impacts how much you are able to save.
Choosing which state you live in during your working years and retirement should be one of your many life-planning decisions.
To reduce your taxes, here is a list of states where you should avoid.