For Many Retirees, Income Tax is a KILLER!

Let's look at why an income tax is more of a killer than a sales tax especially for retirees. Retirees often do not have many tax deductions or exemptions. So a retired couple earning a taxable household income of 35,000 will pay about $3150 in Oregon State income tax. Contrast that with the a typical annual sales tax paid in Washington at $1200.

Sales tax is something you only pay when you buy a taxable item. In Washington food for example is not subject to sales tax. An income tax is levied before you receive your net check. You are going to pay it whether you buy things or not. Sales tax is almost always a lower expense than income tax with the notable exception of being poor. Those in Oregon who have a taxable income of $0 will not pay any income tax, obviously. But in Washington a person with a taxable income of $0 will still need to buy things and some of those things will be subject to sales tax.

Please take note I am using taxable income, because retirees are not subject to income taxes on a sizable portion of their Social Security, ROTH IRA's are tax free, and standard exemptions and deductions reduce taxable income. So someone earning $20,000 could in fact have a taxable income of $0.

So the rule of thumb is, if you are poor live, in Oregon, if you are middle or upper income, move to Washington. Well it isn't always quite that simple, but that simple solution is not to far from reality in actuality.