Fact check: Which states have the highest and lowest tax burdens in 2025 and how does federal funding affect this?

1. Why the “who’s highest and lowest” debate still matters — taxes shape budgets and migration

Measures of state tax burden vary, but multiple 2025 studies converge on a core finding: a small cluster of states concentrates high effective tax rates while several resource-rich or low-tax states sit at the bottom. A March 2025 ranking put Illinois at the top with a 16.58% total effective tax rate, meaning a median-income household there pays roughly $12,270 annually in state and local taxes ^[1]. A June 2025 follow-up reinforced Illinois’ position and placed New York and New Jersey as close runners-up, noting that taxes significantly influence relocation decisions, especially among higher earners ^[2]. These studies emphasize methodology matters—whether one weights income, property, sales, or excise taxes changes where individual states land.

2. Conflicting measurements: why WalletHub’s Hawaii finding differs from Illinois-first studies

A separate April 2025 WalletHub analysis found Hawaii as the highest overall tax burden and Alaska as the lowest, driven by Hawaii’s combination of income, sales, and high living costs and Alaska’s unique absence of a state income tax combined with low property and sales/excise collections ^[3]. This divergence demonstrates that tax-burden rankings are sensitive to definitions—WalletHub’s approach produced a different highest-ranked state than the effective-tax-rate studies from March and June. Policymakers and residents should note that “highest” depends on whether analyses weight median-dollar impacts, percent-of-income measures, or regional cost adjustments ^{[1] [2] [3]}.

3. How federal funding changes alter the state picture — immediate and downstream effects

Recent federal budget legislation in 2025 has prompted state leaders to warn of transferred costs, with governors saying the law shifts responsibilities for healthcare, food assistance, and other programs from the federal to the state level ^[4]. States face both direct fiscal shortfalls and planning uncertainty; some legislatures are proposing tax cuts or offsets at the same time others are building contingency funds, reflecting opposite political reactions to federal retrenchment ^{[4] [5]}. These dynamics mean that a static 2025 tax-burden ranking can mask looming increases in state tax rates or reallocated spending obligations driven by federal policy.

4. State responses: cuts, investments, and shifting tax bases as countermeasures

Commentators and state officials recommend different responses. One opinion argues states should invest in productive services like higher education that pay off longer-term and attempt to shift tax incidence toward nonresidents—strategies such as Delaware’s focus on services used disproportionately by out-of-state actors ^[6]. Conversely, some states are pursuing immediate tax relief or rebates, as seen in Connecticut where Republicans proposed a $700-per-filer cut while Democrats consider using surpluses for a relief fund to replace federal nutrition program funding ^[5]. These contrasting strategies reflect tension between short-run political demands and long-term fiscal strategies in a period of federal uncertainty.

5. Interpreting the numbers — what policymakers and households should watch next

Given the mixed methods and the federal changes, stakeholders should track three indicators: ^[7] state fiscal transfers from recent federal law, which drive near-term budget gaps; ^[8] state legislative actions such as proposed tax cuts or reserve spending to offset federal cuts; and ^[9] updates to tax-burden studies that adjust for revised income distributions and cost-of-living differences ^{[4] [6] [5] [1] [2] [3]}. The interplay of these elements will determine whether high-burden states maintain their positions or whether cost-shifting causes traditionally lower-burden states to see tax pressure rise.

6. Where the analyses disagree and what that implies about agendas

The studies and commentary reveal clear methodological and political drivers. Academic-style effective-tax-rate rankings emphasized Illinois and tri-state-area states as highest, which aligns with concerns from state officials about large program obligations ^{[1] [2]}. WalletHub’s alternative ranking placing Hawaii at the top signals a consumer-cost perspective. Opinion pieces advocating investment or tax-shifting frame federal cuts as an opportunity or a threat depending on partisan priorities, suggesting agendas: some actors push long-term investments, others immediate tax relief or revenue shifting ^{[6] [5]}. Readers should treat every source as advancing a perspective shaped by analytic choices.

7. Bottom line and practical takeaway for readers and policymakers

In 2025, Illinois (often), New York, New Jersey, and Hawaii register among the highest state tax burdens depending on methodology, while Alaska, Delaware, Wyoming, Idaho, and Montana frequently appear among the lowest ^{[1] [2] [3]}. Recent federal budget changes have amplified the fiscal stakes by shifting program costs to states, prompting divergent state-level responses—investment, tax cuts, or contingency funds—that will influence future rankings and household impacts. Watch state legislative budgets and updated burden studies for the next clear signals on how these dynamics evolve ^{[4] [6] [5] [1] [2] [3]}.