These 5 States Squander Your Tax Dollars the Worst

Find out if your state wastes the taxes it collects from you.

May 4, 2014 at 9:46AM

No one likes paying more in taxes than they have to. But the worst thing is when your state and local governments don't make the best use of the tax revenue they collect.

Recently, WalletHub did a study on how good a job various state governments do in making best use of their tax revenue to provide essential services for their residents. Those services include education, health, and safety, as well as infrastructure, economic conditions, and air and water quality. Although some states do a great job of making the most of their tax dollars, others don't provide much bang for the buck when it comes to giving residents what they want. Let's look at the states -- inclusive of D.C. -- that the study found did the worst job.

Worst State Tax
Images courtesy U.S. Mint.


Tobacco plantation. Source: Wikipedia.

5. North Carolina
North Carolina ranked ninth-worst in terms of delivering government services to its residents, which is particularly bad given that it finished in the bottom third in terms of favorable tax structure. The state finishes consistently in the bottom 20 in nearly all areas, with only safety services rising into the top half. Meanwhile, North Carolina's tax burden was 12% higher than the national average, with a 5.8% income tax and a 4.75% state sales tax that jumps to nearly 7% when you add in local sales taxes. Despite the rise of technology services in the Research Triangle area of the state, North Carolina is still the nation's leader in tobacco production, and both Reynolds American (NYSE:RAI) and Lorillard (NYSE:LO) have headquarters within the state.

4. District of Columbia
Washington, D.C., also had a bad combination of tax and government services, ranking eighth worst on the services front and No. 15 in terms of worst taxes. The district does worst in the areas of health and pollution, but even in its best areas of safety and economic performance, it fails to get into the top half of jurisdictions across the country. Meanwhile, individual income tax rates range all the way up to 8.95%, and a 5.75% sales tax combined with high property tax collections make Washington, D.C., a particularly unfavorable tax environment. D.C.'s challenges as a completely urban area with a complex governance structure between local and federal control make it tough for government authorities to coordinate services effectively.

Louisiana Capitol

Louisiana State Capitol. Image: Flickr/Stuart Seeger

3. Louisiana
Louisiana's tax rates actually are relatively good, ranking in the best third of the nation in terms of attractiveness given its low property taxes and top income tax rate of just 6%. But the state is the third worst at providing essential government services, finishing second-to-worst in education and appearing in the bottom dozen for infrastructure and health services. An economy driven by energy and tourism has led to boom and bust periods, especially in light of the devastation that Hurricane Katrina did in 2005. Along with Mississippi and other Gulf states, Louisiana has gotten millions from BP (NYSE:BP) for tourism promotion since the Gulf oil spill, but even with the rise of promising energy-production areas like the Haynesvile Shale, Louisiana still struggles to recover from all the catastrophes it has faced.

2. Mississippi
Like Louisiana, Mississippi has relatively low taxes, appearing among the best 15 states in the country. It has a top income tax rate of just 5%, and although sales taxes come in at 7%, property taxes are relatively low. But Mississippi ranks worst in the nation in delivering government services, with the worst economic environment in the country and bottom-10 showings in education and health services. Mississippi just barely gets into the top half in terms of safety. Perhaps most tellingly, Mississippi is the most reliant of any state on federal-government support.


Image: Jonathan Babin via Flickr.

1. Arkansas
Arkansas tops the overall list, with the second-worst services in the country and taxes that put the state in the worst half of the nation. State income taxes range as high as 7%, with a state and local sales tax that averages more than 9% despite low property taxes. Arkansas ranks in among the 10 worst for health and safety services as well as economic environment, despite being home to the nation's biggest retailer, and it fails to crack the top half in any of the six major areas. Financial literacy is also a major problem in Arkansas, where the state ranks next to last in the nation, hurting the ability of its residents to improve their financial lives.

Residents in these areas are all too familiar with the economic challenges they face. As you look at how your state performs, keep in mind that despite dealing with the problems that every state and local government has to address, you might be much better off than some of your compatriots.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers