Taken in conjunction with personal income data supplied by the U.S. Commerce Department, data from a report on “Tax Freedom Day 2015” published by the Washington, D.C.-based Tax Foundation last spring show that federal, state and local taxes consume nearly 33% of all income for the residents of the 25 forced-unionism states, compared to a little over 29% for residents of the 25 Right to Work states. (See the first link below for more information.)
Part of the substantially heavier overall tax burden for forced-unionism states is due to the fact that, on average, their cost of living is 22% higher than the average for Right to Work states. (For details, see the first link below.) Because federal taxes are levied on nominal, rather than real, spendable incomes, residents of high-cost forced-unionism states like New York, New Jersey and California have to pay higher marginal tax rates than other Americans who are at least equally well off in real terms, but live in low-cost Right to Work states like Texas and North Carolina.
But differences in federal tax burdens account for less than half of the overall tax advantage for Right to Work state residents. This fact is clearly demonstrated by another Tax Foundation report issued just this past week. (See the second link below.)
According to Tax Foundation data combined with U.S. Census Bureau data on state populations for 2012, that year state and local taxes consumed nearly 10.8% of personal income in the 27 states that then lacked Right to Work laws, but just a little more than 8.6% of personal income in the 23 states that protected employees’ Right to Work at the time. (Since Michigan’s and Wisconsin’s Right to Work laws took effect in 2013 and 2015, respectively, they are counted as forced-unionism states here.)
The 16 states with the heaviest state-local tax burdens in 2012 (California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Wisconsin) all lacked Right to Work laws at the time. Meanwhile, 10 of the 12 states with the least burdensome state-and-local taxes are Right to Work.
On average, state and local taxes consumed a 25% higher share of personal income in forced-unionism states than in Right to Work states in 2012. The primary reason is that government spending per capita was far higher in forced-unionism states. A future Institute blog post will focus on the state spending side of the fiscal equation.