Streams

Explainer: How America Redistributes Wealth, State by State

Tuesday, August 16, 2011

When it comes to divvying up tax revenue, states with richer citizens end up footing the bill for those with lower per capita income.

It's A Free Country blogger Steffen Schmidt touched on this last week, following a report from The Economist on the "fiscal transfer" phenomenon that effectively makes some states creditors and others debtors, echoing the Eurozone.

Essentially, you can subtract the amount of federal spending in a state from the amount of federal tax revenue collected from the state. If that number is negative, the state is getting more than it pays in. If the number is positive, the state pays more into the system than it receives.

By this measure, Delaware is our most "generous" state, paying about $211 billion in federal taxes over the last 20 years while only receiving about $86 in federal spending. New Mexico "mooches" most, paying $115 billion in taxes since 1990 but getting $316 billion back over the same period of time.

There are two interesting things to note here. First, creditor states have higher per capita incomes. Of the top 25 states for per capita income, 17 are creditors, giving more to the federal government than they get. Of the bottom 25 states for per capita income, all but four are debtors.

So in a sense, the redistribution of wealth that makes Republican lawmakers so panicky is already happening. Money from states with a richer citizenry traditionally goes to states with a poorer population, whether to pay the salaries of government employees, to pay for retirement or disability services, or to provide grants for special projects.

The second interesting thing: Debtor states with lower per capita income tend to be red. Mississippi, Arizona, Kansas, Louisiana and other states that usually vote Republican get more federal money than they spend in taxes. Liberal enclaves like New York, California and Connecticut see the least bang for buck in their backyard.

There are exceptions, of course. Maryland and Virginia are wealthy creditors that lean right, while Maine and West Virginia are poorer debtors that swing left from time to time. But overall, the trend sticks: how is it that the anti-spending, anti-tax, anti-wealth-redistributing party tends to represent the states that benefit most from tax revenues collected elsewhere?

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Comments [2]

Harrison Bergeron from Fair Lawn NJ

Stephan,

I think that you are too eager to read "blue vs. red" into this. Note:

. The stronger the centralized government is, the more it feeds on its own citizens' labors. If we demand less from Washington, they could not take so much from us. We've created the monster ourselves.

. Much of your debtor-creditor state comparisons reflect city vs. rural populations. It's not news that there is more money in the city than in the country.

. The specific dollar numbers are a start on the analysis, but the percentage of income taken as tax is more significant.

. Regarding: "Delaware is our most generous state", I have some difficulty empathizing with Delaware. The main business there is credit, and credit has been a major factor driving our socio-economic system into the mess that we are in.

Aug. 17 2011 12:00 PM

An interesting 'first cut', as it were.

I'm curious about the composition of 'federal taxes'.

Delaware, to take one state as an example, has a far higher proportion of 'big cap' incorporated businesses than, say, Utah. This will have an effect upon its debtor/creditor status.

Might I be so bold as to suggest that a more careful parsing of the data is in order?

Aug. 17 2011 07:23 AM

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