2023’s States With The Best & Worst Taxpayer ROI « (2024)

New Hampshire boasts the best taxpayer ROI, while California falls last on the list

Tax Day can be a painful reminder of how much we have to invest in federal, state and local governments, though many of us are unaware of exactly what they give us in return. As a result, this creates a disconnect in the minds of taxpayers between the amount of money we should fork over on Tax Day (April 18 this year) – and how much we deserve in return.

Americans have looked at taxes with especially high scrutiny in recent years. In fact, 73% of people think the government doesn’t spend their tax dollars wisely, according to WalletHub’s Taxpayer Survey. We do know, however, that taxpayer return on investment, or ROI, varies based where one lives. Federal income-tax rates are uniform across the nation, yet some states receive far more federal funding than others.

Federal taxes and support are only part of the story, though. Different states have dramatically different tax burdens. This begs the question of whether people in high-tax states receive superior government services. Likewise, are low-tax states more efficient or do they receive low-quality services? In short, where do taxpayers get the most and least bang for their buck?

WalletHub aimed to answer that question by contrasting state and local tax collections with the quality of the services residents receive in each of the 50 states within five categories: Education, Health, Safety, Economy, and Infrastructure & Pollution. Their data set includes a total of 29 key metrics.

Red States have a higher taxpayer return on investment, with an average ranking of 21.52, compared with 29.48 for Blue States (1 = Best).

Tennessee has the lowest proportion of major roads in poor or mediocre condition, 14.00 percent, which is 5.4 times lower than in Rhode Island, the state with the highest at 75.00 percent.

Maine has the fewest violent crimes per 1,000 residents, 1.09, which is 7.7 times lower than in Alaska, the state with the most at 8.38.

North Dakota has the lowest infant mortality rate per 1,000 live births, 2.77, which is 3.4 times lower than in Mississippi, the state with the highest at 9.30.

Expert Commentary

Do states with high tax burdens provide better government services?

“Typically, states with higher tax burdens provide more government services, if they are better is difficult to determine. There is always an opportunity cost with taxes. While states with greater revenues can afford to offer more services, the taxes paid are not in the hands of the individuals to otherwise spend. The cost/benefit of this arrangement may be assessed by the choices made by taxpayers and benefit recipients. The latest census has shown that the highest tax states, California, New York, and Illinois, have all seen massive population exodus. The states that have grown the most, Florida and Texas, do not have an income tax. The benefits or detriments of being in a high-tax state versus a low-tax state could be assessed by the population voting with its feet.”
Nicholas Robinson – Director of Accountancy; Assistant Chair of Accounting and Law, Finance, and BAIS, Eastern Illinois University

“From my observations, they do not. They collect more revenues, but often the political policies and ‘red tape’ these states have make them less efficient than other states. They collect more, but spend it in a way that many would say is less efficient than others who have less to work with, often driven by political beliefs.”
Mitchell Franklin, Ph.D., CPA – Associate Professor, Le Moyne College

How can state and local governments use tax revenue more efficiently?

The benefits or detriments of being in a high-tax state versus a low-tax state could be assessed by the population voting with its feet...

“One trend that I am pleased to see is the rise of evidence-based budgeting in state and local governments. Under evidence-based budgeting, budget requests are accompanied by research to support the request. That is, a budget manager cannot simply request a 10 percent increase in her budget for the year. Instead, the proposed increase would need to be accompanied by research to support the budget increase. A caveat here is that research can be cherry-picked to support nearly any position. Thus, the government also needs a process in place to ensure that as much evidence as possible, including evidence contrary to the preferred outcome, is brought to the table in the decision-making process.”
Stephen J. Lusch, Ph.D. – Associate Professor, Texas Christian University

“Keep politics out of it, stop the red tape and policies that encourage waste and over spending. This will not be popular, but political pressure plays too much of a spending role over the best business decision and leads to money being spent in the places that are not best for the area overall for long-term growth. There is economic research that shows that government is much less efficient at spending and managing programs than private industry. If they really want to maximize efficiency, privatize much of what today is government spending and provide proper incentives for private industry to have a larger role in providing services than hiring employees to carry functions in house. Of course, there is also an issue of private industry accountability when handling government money to provide services, so transparency would be very important to ensure that all parties are accountable.”
Mitchell Franklin, Ph.D., CPA – Associate Professor, Le Moyne College

What are the most efficient ways for local governments to mitigate the fiscal impact of inflation?

“Inflation, from a tax revenue standpoint, is transitory. Meaning it will correct itself in a few years. As the value of a dollar deteriorates and makes everything more expensive, taxpayers will have their salaries eventually adjusted to make up for the increased costs. As taxes are paid based on percentages, when people make more money, more is paid in taxes as well. The increased revenues will cover the increased costs faced by the local government. While this may take several years to fully correct, governments should spend cautiously while they can. Spending within their means and under their revenues can build a reserve fund to cover the additional costs associated with high inflationary times. Once the revenues increase, the reserve fund can be refilled to plan for the next economic downturn. This is always a difficult situation for state and local governments as they do not have the ability to print more money like the federal government does.”
Nicholas Robinson – Director of Accountancy; Assistant Chair of Accounting and Law, Finance, and BAIS, Eastern Illinois University

One response to “2023’s States With The Best & Worst Taxpayer ROI”

1. J Heywood E Sloane says:

   March 23, 2023 at 5:25 pm

   “Typically, states with higher tax burdens provide more government services, if they are better is difficult to determine. There is always an opportunity cost with taxes.”

   Opportunity cost for exactly whom!!!

   Calling it 50-50 for purple states in your top-bottom 10s, 80% of the Red States are sucking at the public teat, and 80% are Blue States getting sucked dry.

   Yet despite that, Blue State “metrics” for their populations far outstrip Red states that consistently abuse their populations – – on every metric, every time, and for literally hundreds of years.