Posted on 03/14/2017 7:39:06 PM PDT by SeekAndFind
Since Donald Trump's election, some leftists have been trotting out analyses showing that many states that voted for Trump are also states where federal spending plays a disproportionately large role in the statewide economy. In other words, many of those states that talk a lot about states rights and less federal government - it is pointed out - also receive an especially large amount of federal spending in that state.
In many cases, this claim is correct. As this mises.org analysis shows, many states within the Trump heartland are what many might call "moocher states" because the residents there - taken overall - receive more in federal spending than in is paid in federal taxes:
The second graph shows the specific amount of federal spending that goes to each state for each dollar spent:
(For more on sources, see here.)
For the charge of hypocrisy to stick against the Trump voters in these states, however, we'd have to show that the people who complain about too much federal government are the same people who receive lots of federal largesse. That's surely true some of the time — as in the case of many conservative seniors on Social Security and military personnel who live off the taxpayer dime. But, there are also surely many residents of net tex receiver states — such as Mississippi — who also are net taxpayers who do not receive a net benefit from federal spending.
Moreover, it's important to understand why some states are more prone to being net recipients of federal spending than others.
Fortunately, Antionio Cheves at American Thinker has added additional analysis to mises.org article on this topic. Chaves writes:
The most straightforward methodology for measuring “federal dependency” of states was presented by Ryan McMaken in the Mises Institute blog. Based on “federal spending per dollar paid”, business-friendly states like Texas and Utah among the net recipients of federal funds. McMaken attributes the federal budgetary shortfall in states like these to differences in urbanization and federal land ownership.
Regression analysis supports McMaken’s assertion that federal land ownership and urbanization play a large role in determining federal spending per dollar paid (Fig. 1 and 2). He rightly points out that urban economies generate more revenue than agriculture and federal monetary policies (such as low interest rates) favor urban investors at the expense of the “main street” households that predominate in rural states. Census data indicates that demographic differences (particularly differences in formal education) may also contribute to this disparity between urban and rural states.
Formal education is correlated to federal spending per dollar paid (Fig. 3 and 4). This is unsurprising because adults lacking a high school diploma or a college degree usually pay less taxes and consume more in federal nonretirement benefits like Medicare, food assistance, and unemployment. What is particularly noteworthy is how disproportionately college graduates are distributed between urban and rural states (Fig. 5). This no doubt contributes to the federal budgetary shortfall observed by McMaken in many of the less urbanized states. It is also worth noting that nine of the ten states with the lowest percent of college graduates all voted for Trump and that all of the ten states with the highest percent of graduates voted for Clinton in 2016.
See the full Chaves article here.
Not surprisingly, states with lots of millionaires and billionaires produce more tax revenue, thus moving those states in the direction of being net taxpayer states.
As with so many comparisons of this sort, there is no one way to do this analysis. But, some methods are certainly better than others. One of the most misleading and crankish methods is the one which looks at federal spending compared to state tax revenues.
This method claims that, when federal revenues are large compared to state revenues, the state is "dependent" on federal funds. This method can be contrasted with the mises.org analysis in which we compare federal spending to state GDP or to federal taxes paid in that state.
The method of comparing federal spending to state revenues has been used in often-cited analysis conducted by Wallethub and the Tax Foundation. The Wallethub analysis was used by The Atlantic to make the point that Texans are a bunch of moochers compared to the Californians. Although, as our own analysis shows, Texas ranks slightly better than California in this regard.
Economist Dan Mitchell has attacked this method, and zeroes in on the Tax Foundation's method, using their map:
Mitchell notes:
[I]t’s also important to remember that the map is showing the relationship between state revenue and federal transfers. So if a state has a very high tax burden (take a wild guess), then federal aid will represent a smaller share of the total amount of money. By contrast, a very libertarian-oriented state with a very low tax burden might look like a moocher state simply because its tax collections are small relative to formulaic transfers from Uncle Sam.
Indeed, this is a reason why the state with best tax policy, South Dakota, looks like one of the top-10 moocher states in the map.
After all, if a state already receives large amounts of federal spending, shouldn't state officials respond by lowering the local tax burden — and thus the overall tax burden — of its citizens? By the rationale of the Wallethub and Tax Foundation analyses, the proper response to lots of federal spending in your state is to increase state spending, thus distorting the state's economy even more than is already being done by federal spending.
A more even-handed analysis, it would seem, would compare federal spending to the overall size of the economy and to federal tax revenues. Moreover, there are other factors which complicate the comparisons, such as the fact that California exports its poor to Texas and other low-cost states.
I wonder if that includes Indian Reservations.
There are lies, damned lies and statistics. Someone figure out how much of a tax burden is paid in total. State, local, business, regulation, federal, car tabs, license fees, hunting/fishing licenses, trucker weight fees, gas tax. It has to be over 50% of all earnings for the middle class.
I agree with it, over sixty percent of adults in my Ky County receive welfare of one sort or another. It didn’t used to be that way but Big factory after big factory, mostly in the garment and textiles industry, Fruit of the loom, Carhartt, etc. left because of various reasons.
And now... well it’s more lucrative to get SSDI or straight welfare than a job. In fact those companies that are still here are begging for workers. They just can’t compete with the Welfare checks though.
Oh, wait. This isn't about Moochelle 0bama...
It is a stupid analysis.
Tax dollars are paid out to individuals for the purposes of the federal government.
Taxes are paid by individuals, corporations, and overseas groups as tarriffs.
There are completely different purposes of the income and the outgo.
It is simply a false comparison to look at taxes going into a state, and coming out of a state. It sounds plausible, but they are completely different things.
It is like saying “People in the army consume far more taxes than they pay!” The comparison is a non-argument.
I would really love to see some analysis on DISCRETIONARY spending amongst the states. Also, these numbers should be broken down by electoral votes. If you get 10% of the vote for the country, you should supply at least 10% of the tax revenue.
It’s an interesting set of stats.
I know a lot of folks think California takes more than it’s fair share. In truth it pays in quite a bit.
In this ranking, it’s not that bad.
That isn’t to say that California isn’t in bad shape and doing worse. It is.
Still, as far as what it pays in and gets back from the federal government, it’s not so bad after all.
I didn’t think it was.
Thank you for the post. Quite informative.
I wonder about the source of the tax dollars spent. If the dollars are for social security, Medicare, ammunition and machinery manufacturing and military salaries and facilities maintenance, then it would be spending for a different purpose than Medicaid, welfare, assistance, food coupons and similar social spending.
Alabama:
Redstone Arsenal
Marshall Space Flight Center
Anniston Army Depot
Fort Rucker
And that money isn’t given away. A lot of work goes on here that benefits the rest of the country.
I feel like such a sucker living in one of them thar yellow states where Americans still do the jobs Americans are no longer doing.
Very interesting, we are going in the hole.
Are the figures in this excluding Federal money spent on military personnel and facilities?
Easier if those that are not listed.
Some things which probably affect it are how many on the dole, how long have your Congressmen been in, and how many are on the Appropriations Committee.
“Formal education is correlated to federal spending per dollar paid (Fig. 3 and 4). This is unsurprising because adults lacking a high school diploma or a college degree usually pay less taxes and consume more in federal nonretirement benefits like Medicare, food assistance, and unemployment.”
Shocking!
The better a group of people are educated, the less the will require in federal assistance.
I figured it would be "Minnie-Sota".
pfl
You would think an extreme example would be if they counted the costs of the Border Patrol in TX as money “going to” TX the same as if it was welfare. Or Social Security and Medicare outlays going to states that are retirement magnets like AZ or FL or NC.
A more useful gauge would be welfare spending per capita in a state vs. personal income tax revenues from that state. Including business tax revenues is, I suspect, the only reason CA is not a darker blue in their chart since Silicon Valley pays huge corporate taxes.
Surprise-it’s the complete opposite. Has been for a long time. About 20 years ago I listened to a leftist environmentalist say that it’s why we should seek more federal dollars for conservation projects as it’s a way to “get our money back”.
State taxes are high, too. That’s one reason why the poor here have great teeth. I have to work on not being bitter about that, we go years in between dental visits because it’s just so expensive. Our kids giggled last time as they saw the looks between the dentists and hygienists when they commented on how long it had been, then the looks when they were surprised at how there were relatively clean with no cavities. Six kids, two of them had never been to the dentist before and not one cavity.
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