5 States Buried in Debt Signal Looming Tax Hikes, While These 5 States Thrive in Fiscal Freedom
State debt across the U.S. has surged to new highs, posing serious challenges for residents. When states carry debt that outpaces revenue, it often creates financial strain, leading to budget cuts and the possibility of tax increases.
This burdens consumers with rising living costs and skewed debt-to-income ratios. To shed light on this fiscal challenge, World Population Review delves into the national debt landscape, analyzing government debt levels across different states.
#1 New York
New York bears the dubious distinction of holding the highest debt burden among all states, amounting to over $203.77 billion. With total assets hovering around $106.61 billion, New York’s debt ratio stands at a staggering 273.8%.
Overspending on Medicaid remains the primary driver behind the state’s towering debt, leading to recent austerity measures such as cuts in school aid and healthcare expenditure.
#2 New Jersey
Securing the second spot on the list, New Jersey grapples with a massive debt load totaling $222.27 billion, outstripping its assets by a substantial $198.67 billion margin. This imbalance translates to a daunting debt ratio of 441.7%.
A significant contributor to New Jersey’s debt woes is its underfunded pension and benefits system for public employees, prompting policymakers to consider tax hikes to address mounting fiscal pressures.
#3 Illinois
Illinois emerges as the third most debt-ridden state in the U.S., burdened with total liabilities reaching $248.67 billion. Against total assets of $53.05 billion, the state faces an alarming unfunded liability of $187.7 billion, resulting in a staggering debt ratio of 468.7%—the highest nationwide.
The bulk of Illinois’s debt stems from obligations towards retired government workers’ pensions and healthcare benefits, mirroring challenges faced by other states like New Jersey.
# 4 Massachusetts
Taking the fourth spot in the debt hierarchy, Massachusetts grapples with a total liability of $104.53 billion against assets valued at $34.214 billion, resulting in a net debt of $68.43 billion.
Long-term liabilities loom large, constituting 305.5% of total assets, with infrastructure and pension obligations representing the state’s primary sources of indebtedness.
#5 California
Rounding off the top five, California shoulders a hefty debt burden totaling $362.87 billion, overshadowing its total assets of $301.1 billion by $55.96 billion. This translates to a debt ratio of 120.5%.
California’s debt portfolio spans retirement liabilities, budgetary borrowing, and bond debt, with the cumulative federal, state, and local debt surpassing the $1 trillion mark.
According to estimates, this debt would impose a significant financial burden on Californians, averaging $33,000 per resident or $74,000 per taxpayer.
Why State Debt Could Prompt Residents to Consider Relocating
When states exceed their annual revenue with spending, they incur a budget deficit, a scenario prohibited by balanced budget requirements (BBRs) in nearly all states. To address deficits, states may resort to various measures, including:
– Implementing budget cuts
– Raising taxes
– Cutting services
These actions can reverberate across numerous aspects of residents’ lives. For instance, budget cuts may escalate living expenses for consumers and curtail access to essential resources like housing, employment, education, and public services. Borrowing or reallocating funds from rainy day funds could result in the state having no emergency savings when disaster truly strikes. If you are worried about the fiscal position of these states, here are the five states with the least debt.
Texas
Topping the list with the lowest debt burden nationwide, Texas boasts total liabilities amounting to $222.64 billion, juxtaposed against total assets of $356.01 billion. This robust fiscal position translates into a commendable net position of $115.08 billion, equating to a debt ratio of a modest 62.5%.
Florida
Following closely behind, Florida claims the second-lowest debt profile in the nation, with total liabilities tallying $66.78 billion and total assets reaching $163.24 billion.
This favorable balance sheet yields a robust net position of $97.6 billion, resulting in a relatively low debt ratio of 40.9%. Despite recent decreases in debt, Florida anticipates an uptick in indebtedness over the coming years.
Alaska
Securing the third spot for the lowest debt burden, Alaska boasts a commendable net position of $76.74 billion, driven by total liabilities of $12.65 billion and total assets of $89.17 billion.
Alaska’s fiscal resilience is fortified by revenue streams derived predominantly from taxes on oil and gas production, despite the absence of a state income tax.
North Carolina
North Carolina emerges as the fourth-least indebted state in the U.S., underscoring a robust net position of $54.41 billion. Bolstered by total assets exceeding liabilities by $78.67 billion, the state maintains a commendable debt ratio of 30%.
Tennessee
Rounding off the top five with minimal debt exposure, Tennessee showcases total liabilities of $8.04 billion juxtaposed against total assets of $46.54 billion, culminating in a noteworthy net position of $39.3 billion and a debt ratio of a mere 17.3%.
Renowned for its tax-friendly environment, Tennessee has managed to triple its Rainy Day Fund while implementing tax cuts for residents, including a significant reduction in-state sales tax on groceries.
Relocation Trends Offer Clues
The list of 5 states with most debt and least debt should not come as a surprise to anyone who has been tracking the states losing population.
2023 saw booming demand for U-Haul equipment from California, Massachusetts, Illinois, and New Jersey as citizens chose to flee the West Coast and Northeast. On the U-Haul Growth Index, which shows net losses of one-way trucks in various states that year, California, Massachusetts and Illinois ranked 50th, 49th and 48th, respectively – marking their third consecutive year at the bottom positions.
Over the nine years between 2010 and 2019, the U.S. Census Bureau reports that California, New York, New Jersey, Michigan, and Illinois have seen a collective population decline of 4 million.
For the sixth time in eight years (2016-2018 and 2021-2023), Texas secures the top spot as the No. 1 growth state and has consistently held a ranking no lower than second on the U-Haul Growth Index during this period.
Texas and Florida have been consistently in the list of states attracting the highest number of one-way influx of people.
The top states for growth according to this metric (including their ranking in 2022) are as follows:
1. Texas (1)
2. Florida (2)
3. North Carolina (4)
4. South Carolina (3)
5. Tennessee (6)
Is Your State on the Brink?
State debt has reached unprecedented levels across the nation, posing significant challenges for residents. When a state accumulates more debt than revenue, it often resorts to budget cuts and potential tax hikes, leading to financial insecurity and soaring living expenses.
As residents grapple with disproportionate debt-to-income ratios, the fiscal conundrum intensifies, prompting some to consider relocating to states with more favorable debt profiles shifting landscape of American demographics and economic vitality.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
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