The hidden costs of low-tax states
Summary
States in the U.S. rely on different types of taxes to fund their governments. Some states collect most of their revenue from income taxes on wages and businesses, while others depend mainly on taxes from sales, gas, tourism, and other purchases.Key Facts
- In 2025, 27 states got most of their tax money from sales and consumption taxes.
- 21 states raised most of their tax revenue from income taxes, including taxes on wages and corporate profits.
- Texas, Florida, and some other states have no income tax and rely heavily on taxes from spending and business activity.
- California, New York, Massachusetts, and Connecticut depend mostly on income taxes, which are affected by earnings and business profits.
- All states collected some form of sales or similar taxes by 2025, making up 45.4% of state tax revenue nationwide.
- Taxes on consumption can feel lighter for wealthy people but often take more from lower-income families.
- The way taxes are collected may influence economic fairness and affect racial inequality since lower-income Black and Hispanic households may pay a larger share of consumption taxes.
- States have created tax systems based on different parts of the economy and populations, not just on whether taxes are "high" or "low."
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