Tuesday, May 12, 2015

Taxpayer Return for 2015

Tax Day 2015 has come and gone. Last year I wrote a post about taxpayer return on investment by state. Wallethub has produced a 2015 return analysis, so a year-to-year comparison can be made for West Virginia. The (moderately) good news is that WV climbed one spot up the rankings, from 46th to 45th best return on investment for taxpayers. The still bad (overall) news is that WV has one of the ten worst returns in government services per amount of taxes paid.
The state's "tax rate rank" fell from 18th to 22nd best. Wallethub ranks states by looking at the average state and local taxes and comparing them to the national average. For WV, the average figure was $5,457.  That is lower than last year, but enough states cut their tax rates so that WV dropped four spots in relative terms. To provide context, Alaska had the lowest rate at $2,993/person and Illinois had the highest at $7,719/person. Despite having a perception as a state with high tax rates, WV is at least in the top half of states with the lowest tax burden. When a lower cost of living than the national average is taken into account, this tax burden is even lower. But taxes did get marginally higher from 2014 to 2015.
The overall government services rank improved from 47th to 46th best. Surprisingly, Wallethub ranks our water quality number one in the U.S.
It is hard to tell where their data is coming from for this ranking. They note The Environmental Working Group (EWG) as a source, but I could not find a recent report from that organization. Thus, last year's chemical spill in Charleston was probably not factored into their analysis. On the other end of the spectrum, WV ranked near the bottom in hospital systems. 
This is an improvement from worst (51st) last year, but is still not good. Wallethub based this rank on a number of factors. One of them was the concentration of hospitals per population, which makes WV look bad. The average life expectancy and infant mortality rates are two other "outcome" based factors that went into their calculation. Out-of-pocket medical expenses and the average health premium payment were the other factors, along with a generic "public hospital system rank". Ultimately, there is only so much hospitals can do to improve the general health of the population, so life expectancy is a bit of a poor measure of the state's health care. The amount paid out-of-pocket also does not seem very causally linked to the system's quality. Regardless, the perception is still that WV citizens are getting a low return on taxes paid when it comes to health care.
The big picture has changed very slightly from last year. We are in the top half of states for least oppressive tax rates, but we are near the bottom in terms of government services quality. Reason would dictate that either the state's services improve dramatically, or taxes decrease a little bit (marginally). For example, a state with the worst government services should have a very low (maybe the lowest) tax rate. Whereas a state that is getting very high quality services can expect a high (maybe the highest) tax rate. With the 46th best services, WV citizens could argue that they should pay the 5th lowest tax rates (51 - 46 = 5). That would mean the average West Virginian pays about $4,000 in state and local taxes instead of $5,457. That is a reduction of around 25%. 
Unfortunately, taxes appear to be moving a little higher instead of a little lower. Unless that state has solid plans on how those extra dollars in tax revenue will improve services and outcomes for citizens, it should consider reducing the average tax rate. This is easier said than done. Politics will ultimately rule the day and stamp out any well-formed public policy analysis. But at least there are organizations like Wallethub providing a clearer picture to taxpayers. 
And it could always be worse. West Virginians could move to Michigan which combines one of the highest tax rates with the 45th best government services. High taxes and poor government services, that is a recipe for disaster. 

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