A lot of people outside the US do not realize just how much taxes can vary between states. The difference between US states in this regard is often larger than between European countries. Many people also believe that taxes are lower in the United States than in Europe, but it really depends on the type of taxes. In several cases, some European countries are much more attractive.
Income tax
Several states have no income tax at all, including big states like Texas, Florida, or Washington. In contrast, California has the highest income tax at 13.3%. Of course there is the federal income tax on top of the state tax, which is progressive by income bracket and ranges from 10% to 37%. So for someone with a high salary living in California, the marginal income tax rate would be 50.3%, higher than in most of Europe. The lowest income tax someone can have by living anywhere in the USA or Europe would be in Romania and Bulgaria, which have a flat income tax of only 10% (regardless of income level). In the US, paying 10% of income tax is only possible for the lowest salaries in states that do not have an income tax.
Sales tax & VAT
The cost of living can be influenced by the sales tax. It is usually around 9 or 10% in the Southeast, while a few states have no sales tax at all (Oregon, Montana, Delaware and New Hampshire). When making a big purchase, like a car, that can make a difference of several thousand dollars. In Europe, VAT rates range from 19% to 25%, apart from Hungary that goes up as high as 27%. So the difference between European countries is generally just a few percent, while between US states it can be over 10 percent. However many European countries (UK, France, Belgium, Germany, Switzerland, Italy, Spain, etc.) charge much lower VAT (generally 3% to 7%) on essential goods like food or medicines. The UK even has a 0% VAT rate on basic foods like bread. So, at first sight, it appears that the US has lower sales taxes, but the reality is more complex, and for most basic products like food, the European VAT is often lower than the sales tax in most US states.Property tax
Another major tax is the property tax, which is 10 times higher in New Jersey (2.57%) than in Hawaii (0.27%). Interestingly, European countries usually have lower property taxes than the US. A few countries like Malta and Lithuania have no property tax at all, while others have a marginal one under 0.01%, including Switzerland, Austria and Czechia. The United Kingdom has the highest property tax in Europe and would be slightly above average for the United States, similar to California, Ohio or Maine.Capital gain tax
Anyone investing in stocks we'll have to pay capital gain taxes once they sell their investments. The difference is they are much smaller between states, ranging from 25% to 33%. Europe has more variations in this regard, with rates ranging from 15% to 42%. However, quite a few countries have no capital gain tax at all, which make them considerably more interesting than anywhere in the US.Share of tax revenues by US states
These charts show the wide variations in the share of state tax revenues by source. The "Other Taxes" category includes:- Business-related taxes (e.g. on insurance and utilities)
- Excise taxes (on tobacco, alcohol, sodas, etc.)
- Motor vehicle and fuel taxes
- Gambling and lottery taxes
- Licences (for fishing/hunting)
- Franchise taxes (for companies to operate in some states like Arkansas, Delaware or Texas)
- Estate and inheritance taxes (in states like New York, Massachusetts, Oregon, and Washington)
- Payroll-related taxes (e.g. unemployment insurance)
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