This American City Taxes High-Income Earners the Most: Report

A woman wears a mask as she rides a scooter in downtown Portland, Ore., on Sept. 14, 2020. (Robyn Beck/AFP via Getty Images)

Portland, Oregon, is the least favorable city for high-income individuals with regard to tax rates, while cities such as New York, Honolulu, and San Francisco have the lowest purchasing power for those making $250,000.

A June 1 report by consumer-focused financial information provider SmartAsset looked at how far $250,000 per year of income is worth in various American cities. For its analysis, SmartAsset compared the after-tax income of the 76 largest cities, adjusting those figures for the cost of living in each place. Portland was found to be the “least favorable” city for high-income earners. If an individual making $100,000 went on to earn $250,000, their effective tax rate would jump from 7.47 percent to 41 percent, according to the report.

The purchasing power of $250,000 was found to be the lowest in New York, at just $82,421.28. New York has a tax rate of 39.5 percent. Honolulu came in second, at $82.672.04, and San Francisco third, at $82,776.26.

Memphis, Tennessee, was found to be the city where the purchasing power of $250,000 was the highest, at $203,664. This was followed by El Paso, Texas; Oklahoma City; and the Texan cities of Corpus Christi and Lubbock. Seven of the cities in the top 10 were from Texas, where there are no personal income taxes.

According to the report, high-income earners could essentially move locations to take advantage of lower tax rates. “There are 21 cities where those earning $250,000 per year in one city have a lower tax rate than those who earn $100,000 in 35 other cities.”

“Most of the lowest effective tax rates on $250,000 are in places with no state income tax, including Seattle and Spokane, Washington; Plano, Austin, and Dallas, Texas; Miami and Orlando, Florida; Reno and Las Vegas, Nevada; and Nashville, Tennessee,” the report said.

Migrating Out From High-Tax Areas

States with high taxes have seen an exodus of taxpayers in the past years. According to Internal Revenue Service migration data released in April, California’s tax base shrunk by almost $29.1 billion between 2020 and 2021 as it saw a net loss of 332,000 taxpayers.

New York came in second with a loss of 262,000 taxpayers, and Illinois came in third with a loss of 105,000.

California and New York have individual tax rates exceeding 10 percent, while Illinois’s personal income tax is close to 5 percent. California takes in more tax revenue than any other American state due to its tax structure, which imposes higher rates on wealthier individuals.

Florida saw the highest net migration of taxpayers at 256,000 residents, followed by Texas with 175,000 people, and Nevada in the third spot. These three states do not charge a personal income tax. Other states with high inflow of taxpayers were Arizona, North and South Carolina, and Tennessee.

Migration of High-Earning Households

An August 2022 report from SmartAsset reveals that out of the 10 states which saw the biggest influx of high-earning households between 2019 and 2020, eight are partially located in the Sun Belt. SmartAsset classified households making at least $200,000 as high-earning.

Nine states do not tax income at the state level, out of which four were in the 10 places that saw the largest net inflow of high-income households.

The District of Columbia was found to have the biggest proportion of high-earners, with households making at least $200,000 per year, accounting for 12.19 percent of all tax filers. West Virginia had the smallest proportion at just 2.96 percent.

“When a state loses more high-earning tax filers than it gains in a given year, tax revenues may decline and the state’s fiscal situation may worsen,” the report states.

“That’s why despite making up less than 7 percent of total tax returns filed across the 50 states and the District of Columbia in 2020, the migration patterns of high-earning households continue to make headlines.”