Oh, really??? Who collects/forwards the withholding taxes for the state employees??? Or perhaps you are claiming the state doesn't need to pay its employees enough to have w/h taxes?
Are you claiming that the state collects the income taxes paid on all the people who work in the state for private companies? Don't be absurd! The number of state employees in a state is so miniscule that that amount doesn't matter -- but to have to remit all the taxes collected in a state -- that's something altogether different.