Who Relies More on the Federal Government - Red or Blue States?
Red States May Get More From the Federal Government Than the Federal Government Collects But For Very Obvious Reasons
Several of my friends and colleagues have sent me a link to a report on WalletHub that ranks each state’s dependency on the Federal Government. The concept is that some states pay more into the federal coffers but get less in return. You can find the report here: https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/
The people who sent this link to me thought they were sending me a “gotcha” moment, as the report shows many Blue (Democrat) states pay more to the Federal Government than they get in return, and may Red (Republican) states pay less to the Federal Government than they get in return, somehow proving that Republicans who often talk about independence and self-sufficiency are really the opposite and in some way hypocrites.
Well, it is not a gotcha moment at all. It may be the reality, but it is the reality for some very logical reasons.
Democrat states tend to have higher populations and people who earn a lot of money. Of the ten highest income counties in the US, all but one is in a Blue state. The two states with the most millionaires and billionaires are California and New York. So simple math suggests the lion’s share of the Federal Income Tax collected will be from these rich Blue states. Remember the top 10% of income earners pay 70% of all Federal Income Tax.
So how does the Federal Government spend the money it collects? If you do not include interest payments on debt, most is spent on entitlements and government programs. Congress controls all such expenditures. Congress is controlled by congressmen from the most populous states. The five most populous Blue states control over 30% of the Congressional delegates.
To get elected, Blue state politicians promise hand-outs, payoffs, and redistribution of wealth (you know, free this and free that). When they get elected and they pass legislation on these handouts and wealth redistributions they are constrained by the fact that Congress is a federal body, so when it mandates handouts, those handouts go to everyone in the US, not just Blue states. (If you are going to provide free lunches in schools at the federal level, all schools get the free lunches, not just the ones in Blue states). To make matters worse, many of these handouts and programs are means tested, and of course people who earn more money will receive less of the benefits. So, all the millionaires and billionaires in California and New York will not get these benefits, but average people in Oklahoma, South Dakota, and Wyoming will get the benefits.
It is humorous and ironic that Red states, who favor small government, personal responsibility, and personal freedom benefit financially from Blue states that want ever increasing government, more taxes, more government programs, and more redistribution of wealth.
The article in WalletHub asserts that some states are more dependent upon the Federal Government than other states. However, the article really describes the imbalance between what the Federal Government collects from each state, and what it then turns around and spends in that state. Just because a state is the recipient of Federal funds, does not mean that the state is dependent upon the Federal Government for those funds. I suspect some states that receive Federal funds could manage just fine without those Federal funds.
I suspect many politicians (and citizens) in Red states would prefer it if the Federal Government collected less in taxes and spent less on government programs. The reality is that the Federal Government collects what it collects, and spends what it spends, and it is the right, if not the duty, of every politician to get what he or she can of that government spending for the citizens that politician represents. That is not hypocritical, that’s just common sense.
The article goes on to discuss two other government expenditures – grants and contracts. While many government programs are entitlements, which means everyone can participate, the government also spends a lot of money on grants and contracts. Where it spends that grant money and where it lets those contracts affects the ratio of taxes paid to Federal Government spending. Two of the states that pay the most in taxes, California and New York, are also two of the states that receive the highest amount of grants and government contracts. States that pay the least amount of taxes in comparison to government spending, such as Montana, are on the low end of receiving government contracts and grants. So, the mechanics of government are working to some degree to counterbalance the imbalance that is naturally created by the income distribution and population distribution, and entitlement payments, which occur throughout the nation.
If you look at the methodology used in this study, it takes a very limited number of factors into account. Here is the methodology:
State Residents’ Dependency – Total Points: 50. Return on Taxes Paid to the Federal Government: Triple Weight (~37.50 Points) Note: This metric was calculated by dividing federal funding in U.S. dollars by IRS collections in U.S. dollars. And, Share of Federal Jobs: Full Weight (~12.50 Points).
State Government’s Dependency – Total Points: 50. Federal Funding as a Share of State Revenue: Full Weight (~50.00 Points) Note: This metric reflects the proportion of state revenue that comes from the federal government in the form of intergovernmental aid in 2020.
Clearly the weights assigned to each of the three categories of Federal support – Return on taxes paid, Federal jobs and share of state budgets – are completely arbitrary. I am not even sure why the share of Federal Jobs in a state would even be part of the calculation.
Further, the article leaves out important factors that really need to be considered. As an example, Wyoming is one of those states that is ranked as having a high dependency on the Federal Government. However, Wyoming has a population of just over 500,000 people (a very small population), many who are ranchers and farmers whom we would expect to be lower on the income scale, but almost 50% of the land in Wyoming is owned by the Federal Government. Clearly the Federal Government is going to be spending a lot of money in that state, when it owns half the land.
This article, and the research behind it, is not a gotcha moment. It does not prove that Red states are hypocrites or that Red states are more dependent on the Federal Government. But if you have an issue with how the Federal Government spends its money (in Red States as opposed to Blue States) you could support a smaller government that spends less. The likelihood of this type of purported imbalance would be significantly less if the Federal Government simply let us keep more of our money and spend it where we want to spend it. The people that sent me this article would be appalled at the very idea.