If you are retired and living in a state that has income tax at the state or local level you are giving away money. This means you Oregonians and Californians. Retired persons typically have very few income deductions and having a portion of Social Security and all of one's pension or IRA payments taxed is a hit to the lifestyle. In Oregon it only takes about $8,000 in income to hit the 9% rate. NINE percent! I wrote a post last year that discusses this and other concerns and I have it posted below.
Originally posted on this blog, March 22nd, 2016, by Rod Sager
I have written extensively on this site about the lack of state income tax in Washington State. Many readers may live in another state such as Oregon or California. Unless you live in Washington or one of six other states you will likely be filling out second income tax return this year. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income tax. New Hampshire and Tennessee have no wage income tax but they do tax dividends and interest which can adversely effect the retired.
Most of the states without an income tax do have a sales tax. A notable exception is the State of Alaska which has neither tax. New Hampshire which has a partial income tax as noted above, also has no sales tax.
Washington State has a sales tax. For retirees and frankly most other people earning legitimate income, a sales tax is better than an income tax. An income tax punishes those that save. A sales tax only effects consumption.
Higher earners get seriously clobbered by an income tax. According to an editorial Oregonian article, Oregon taxes annual income from zero to $3250 at 5% and then 7% to $8150, 9% to $125k, and then 9.9% for the "wealthy". Oregon taxes the poor. That's a special kind of nice; isn't it? According to the Oregonian article 70% of Oregonians fall into the 9% bracket. How is if "fair" that Oregon, one of the nation's "poorer" states ranked 29th in income, has 70% of the people falling into the 9% bracket?
Most importantly, if a retired person diligently saves for retirement and or has a generous pension, states like Oregon will come after you like a hungry lion. Seriously taxing 9% on income over $8150? The compassionate government of Oregon will tax the guy that lives in a tent under a bridge at 5%? Really? That just sucks.
Meanwhile in Washington State the sales taxes do not tax food and medicine and other core essentials so they do not "punish" the poor like Oregon does.
Oregon treats you like you are in the dreaded top 1%, when you are "rich" and make more than a lousy $8151 A YEAR. Oh yes, the state lowers the boom on your decadent lifestyle with a 9% tax on that burger flipping income of $12,000 a year. Please, soak up the full effect of my heavy sludge of sarcasm on this. Seriously Oregon? $8151? 9%, really? According the the Federal government an individual is considered below poverty with an income of less than $11,770 per year. People earning less than $11,770 should pay NO TAXES at all on that income. The Oregon government would have you believe that they are some sort of Robin Hood, but in reality they are just robbers in hoods.
Retirees are well advised to steer clear of states with a heavy handed income tax. Our southern neighbor, Oregon has a tax that brutally offends the poorest among us; and if you are in a more comfortable income bracket, they will plunder you like a 18th century pirate. All the while those vile politicians smile and tell you how well they take care of the poor with your taxes. Oregon's government is a sickening wretch that should be ashamed of that horrendous affront to humanity they call an income tax. That is but one man's opinion; one should do their own diligent research before deciding upon where they shall retire. As always when making any decision that involves taxation consult with your trusted tax professional.