We all pay taxes a little differently depending on where we live, but it's not always clear what we get in return. WalletHub conducted a study on taxpayer return on investment by state. New Hampshire and Florida rank at the top in this study.
New Hampshire’s high ranking is largely due to the absence of a state income tax. Residents pay property, sales, and excise taxes to the state. That revenue has positively impacted crime prevention and the environment. New Hampshire boasts the lowest crime rate, the second-lowest air pollution, and one of the best public school systems in the nation.
Floridians do not pay an income tax either and benefit from high-ranking universities and an impressive high school graduation rate. The Sunshine State also maintains a decent infrastructure score and low unemployment.
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Ranking at the bottom are New Mexico, Hawaii, and Alaska. All three states rank near the bottom in the U.S. for return on investment in health, education, safety, and the economy. The study further found that, on average, red states provide a better return on investment for their tax dollars compared to blue states.
The state providing the best government service was Minnesota, although higher taxes meant that the state ranked No. 31 for return on investment. Conversely, Florida, which ranked No. 2 for return on investment, ranked No. 23 for state government service.
“There can be a tradeoff between how much tax you pay and what you receive in return from the government. Several of the states with the best taxpayer ROI don’t charge any income tax, and residents pay less at tax time while receiving good-quality (though not necessarily the best) government services. At the same time, while people pay more in states that do charge income tax, they may benefit from better infrastructure, education, safety, or public health as a result," said Chip Lupo, WalletHub Analyst.
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Min Lu, Louisiana State University associate professor in the Department of Public Administration, noted that states with higher taxes tended to provide a higher level of government services.
She also noted that it is more challenging for rural states and regions with a higher cost of living to provide government services.
"Ultimately, while high-tax states generally provide more public services, spending alone does not guarantee better outcomes. The effectiveness of public spending depends on how well governments manage their resources, whether they leverage alternative revenue sources, and how efficiently services are delivered," she said. "For residents assessing the return on investment (ROI) of their tax dollars, it is not enough to look at how much a state spends; it is equally important to evaluate how well their state converts that spending into real benefits."
