Tuesday, April 27, 2010

Where Should I Live (Where I Won't Get Crushed)?

I live in New York and own property here. People in New York have begun to view their homes not as assets but as potential liabilities, since it is through people’s homes that the state and local governments channel much of their taxation. New York is already an ultra-high tax state with piles of debt, but worse than that, it is looking an enormous unfunded pension liability for all those unionized public sector employees.

When you move to New York, you are basically assuming a portion of both the existing debt and the unfunded liabilities. Call this Real Debt. Consider this a liability on your family’s balance sheet, because they will come after you for it. For New York, I calculate this number to be $22,997 per person. Minors don’t pay taxes (much), so this actually works out to more like $32,500 per person if you are over 21. $65,000 for a married couple. And, of course, much of our population doesn’t pay taxes, so the real number for taxpayers is even higher than this, likely much higher.

One also needs to keep in mind that this is just the number to cover what has already been spent/allocated for without having actually been paid for. The operating expenses of the state – and they run a crackerjack operation here in New York – come on top.

Few people I know plan to live the rest of their lives in New York. The state has made it untenable to retire here, particularly if you have any substantial assets. So, the question becomes, where do you go? In which state do you assume the smallest liability for the privilege of living there?

I wanted to get to the bottom of this, so I decided to rank every state by its "Total Real Debt" per capita.

(Methodology: To get Total Real Debt, I started with each state’s total outstanding debt. From this, I subtracted any assets (three states – New Mexico, Alaska, and Texas – actually have the equivalent of sovereign wealth funds, related to natural resources or litigation settlements) to arrive at “net debt.” To this, I added total unfunded public pensions, which then gives us the Total Real Debt number. Take this, and divide by population to get debt per capita.)

Here are all 50 states plus the District of Columbia:

Sources: U.S. Census, American Enterprise Institute

Some thoughts:

Move to Alaska, Tennessee, Wyoming, Florida, or Indiana. All seem to have run their states in fiscally responsible fashions and all have zero or low tax rates.

Alaska actually pays you to live there, roughly $2000 a year. This comes out of a fund created from revenue related to the Alaska pipeline. Of course, this gets offset by the generally higher cost of living, and the fact that you will freeze your ass off most of the year.

The bottom ten (or even fifteen) are probably all as bad as they appear – total basket cases – with the possible exception of Nevada, which has plenty of gambling revenue (and thus the 0% tax rate).

All this is on top of the $42,000 per head that our national debt comes to. Somebody save us!


  1. Vermont is no better than NY. We are suffering from massive fiscal irresponsibility and even with a huge income tax, most of our financing comes from property taxes (and the state continues to shift more and more on to the property tax rolls). Of course, with the "socialist" govt, many properties are exempt from property tax (many people apply as a farm etc) and anyone earning less than $90,000 is exempt from paying full property taxes. They are capped out at 2+% of their income. Nice to know that in VT 75% of the population does not pay full property taxes. Since when is $90k considered a low income?

    Our income rolls are shrinking rapidly and the state's expenses are skyrocketing. The education financing situation is dyer. As a former school board member, it is clear to me that the light at the end of the tunnel is not the way out, it is a train headed right for us.

  2. AT:

    It looks like the table does not reveal "all" if Vermont is in that bad shape. I imagine you lose a lot of people to New Hampshire with its zero income tax rate...As we watch Greece get downgraded to junk status, it seems we are willfully heading in the same direction.

  3. Hi Scott,

    I am not sure how the chart calculates debt or when the numbers are collected, but here in VT, the tax rolls are dropping and the expenses are rising. The Tax Commissioner has been giving presentations all over the state as has the Education Commissioner. I have been attending these presentations as organized by the GOP, but they are presenting wherever they can. It is so scary that our elected officials have little to no business acumen. That said, those with any common sense avoid politics. I declined a request to run for Governor. Not in a million years!


  4. Scott,

    As an additional layer of analysis, I think it would be interesting to see net debt per capita as a % of each state's GDP per capita.

    I think it would also be interesting to include Canada (as a whole) in the comparison. My prediction is that we will live to see Canada become to the US what the US has become to Mexico...


  5. RG:

    I actually did do that analysis (vs state GDP). I don't have access to it right now, but I'll post the conclusions.

    Although GDP is arguably the more relevant number, I thought the bringing it home to a cost "per head" might resonate more. Either way, a lot of these states are screwed.

    As for our friends to the north, God help us if Americans in great number start leaving for ANY other country to make their fortunes.