What’s Left After Taxes

New York ranks #7 in per capita personal income. Impressive. But switch to disposable income — what people actually get to spend — and New York falls to #12. Five spots gone, vaporized by a 15.8% effective tax rate that takes nearly $13,500 out of every resident’s pocket.

Now here’s where taxes change everything. Washington state, ranked #8 in pre-tax income, jumps to #5 after taxes. New Hampshire leaps from #11 to #7. Tennessee, a solidly middle-of-the-pack #39 in gross earnings, rockets up five spots to #34. The common thread? Zero state income tax. When Uncle Sam is the only one taking a cut, you keep more of the check.

The difference is not abstract. A household earning the national average in Washington keeps roughly $4,000 more per year than an identical household in New York. That is enough to cover a year of car payments, or six months of groceries, or a family vacation. Same gross salary. Wildly different net deposit.

DC towers above everyone at $92,365 — and it does so despite having the nation’s highest tax bite at 16.9%. Federal workers, lobbyists, and lawyers earn so much that even after handing over nearly one dollar in six, they still clear $28,000 more than the #2 state. No suburb dilutes the average. No rural county drags it down. The District is a pure urban income engine.

Connecticut ($80,694) and Massachusetts ($79,289) hold their top-3 positions from the pre-tax ranking. Both run effective tax rates above 15% — and both are still wealthy enough that it does not matter. Finance in Greenwich. Biotech in Cambridge. The tax collector takes a big slice, but the pie is enormous.

But the real surprise is #4. Wyoming — population 577,000, economy built on energy and ranching — posts $77,361 in disposable income per capita. No state income tax, strong mineral royalties, and a small population splitting big investment returns. Wyoming earned $86,477 pre-tax and kept 89.4 cents on the dollar. Connecticut earned $95,067 and kept only 84.9 cents.

The spread is striking. DC residents surrender 16.9% of their income to taxes. New Yorkers hand over 15.8%. At the other end, Alaskans pay just 7.9%, and Mississippians 8.1%.

But notice something counterintuitive: low-tax and low-income often go together. Mississippi’s 8.1% tax bite sounds appealing until you realize that 8.1% of $52,048 is just $4,217 in taxes. New York’s 15.8% of $85,552 is $13,523 — more than three times as much in absolute terms. New Yorkers pay far more in taxes and still end up with $72,029 in disposable income, compared to Mississippi’s $47,831. Paying more taxes did not make them poorer. Earning more income made the taxes bearable.

The no-income-tax states cluster near the bottom of the chart, as expected: Alaska (7.9%), South Dakota (8.3%), Tennessee (8.5%). But so do several low-income states that simply do not generate enough taxable income to push rates higher. Oklahoma (8.5%), Alabama, West Virginia — their tax rates are low because incomes are low, not because of deliberate tax-haven policy.

When you switch from pre-tax income to disposable income, some states barely move. DC stays #1. Mississippi stays last. But in the crowded middle — where $2,000 separates five or six states — tax policy can shuffle the deck dramatically.

Tennessee is the biggest climber. Five spots, from #39 to #34. Its 8.5% tax rate is among the nation’s lowest, and in the crowded middle of the income distribution, that savings leapfrogs it past Ohio, Indiana, Iowa, and Kansas. For a Tennessee household, that advantage translates to roughly $2,800 per year in kept income versus a peer in Minnesota paying 14.2%.

New York is the biggest faller. Five spots down, from #7 to #12. The Empire State’s combined federal, state, and city tax load — a 15.8% effective rate — carves $13,523 out of every $85,552 earned. New Jersey drops three spots. Maryland drops three. Minnesota drops three. High-tax states lose ground in clusters.

But here is the paradox that makes the data so interesting: Florida has no income tax and still drops two spots. From #17 pre-tax to #19 after-tax. How? Because Florida’s heavy reliance on retiree investment income means federal capital gains and dividend taxes hit harder than in states with younger, wage-earning populations. Property taxes and sales taxes fill the gap where income tax is absent. The “no income tax” label is not the whole story.

The bar chart makes the pattern visual. Climbers are almost exclusively no-income-tax states: Tennessee, New Hampshire, Texas, Washington, Alaska, South Dakota. Fallers are a mix of high-tax coastal states (New York, New Jersey, Maryland, Minnesota) and a few surprises from the Midwest (Iowa, Indiana, Wisconsin).

The bottom five never move. Mississippi, West Virginia, Alabama, Kentucky, and New Mexico anchor the bottom of both lists. Their tax rates are actually below average — Mississippi pays just 8.1%. But when your pre-tax income is $52,048, a low tax rate saves you $500 compared to the national average. Meanwhile, the gap between Mississippi and Connecticut is $43,000. Tax policy cannot close that chasm. Only economic growth can.

This is the fundamental lesson of disposable income data: taxes reshuffle the middle, but they cannot rewrite the top or the bottom. DC, Connecticut, and Massachusetts lead both rankings because they generate so much income that even hefty taxes leave their residents wealthy. Mississippi and West Virginia trail both rankings because their economies produce too little income for any tax policy to rescue.

Strip away the rankings and ask the practical question: how much does the tax difference actually cost a family?

Consider two identical households earning $73,000 — right at the national per capita average. One lives in Washington state (10.7% effective rate). The other lives in New York (15.8%). The Washington household keeps roughly $65,189. The New York household keeps $61,466. That is a $3,723 annual difference — enough for six months of car insurance, three months of groceries for a family of four, or the annual contribution to a child’s 529 college savings plan.

Scale it up to DC’s income level and the numbers get stark. A DC earner making $107,851 pays $18,227 in personal taxes (16.9%). An Alaskan earning $76,898 pays $6,075 (7.9%). The gap: $12,152 per year — more than $1,000 every month. Of course, the DC earner still ends up with far more disposable income ($92,365 vs. $70,193). Taxes take a bigger bite, but the meal itself is far larger.