Who Benefits from Feds' Tax-and-Spending Policies?

The federal tax burden falls much more heavily on some states than others, according to Tax Foundation senior economist Scott Moody. Comparing federal tax burden by state with the Census Bureau's year 2000 data on federal expenditures by state, Moody has identified the winners and losers in Uncle Sam's tax and spending roulette.

According to Moody's analysis, taxpayers in New Mexico benefitted the most from the give-and-take with Uncle Sam. Residents of the Land of Enchantment received $2.03 in federal outlays for every $1.00 they paid in federal taxes. Uncle Sam spent $1.86 in North Dakota for each tax dollar, $1.78 in Mississippi, and $1.75 in West Virginia. Though not comparable as a state, the District of Columbia is by far the biggest beneficiary of federal spending: In 2000 it received $6.49 in federal outlays for every dollar its taxpayers sent to the U.S. Treasury.

Factors influencing the shifting of federal dollars include the location of people who receive Social Security, Medicare, and other substantial federal entitlements, the location of federal employees, federal procurement decisions, and grants to state and local governments.

If some states are beneficiaries, receiving more than they send in, then naturally some states must be benefactors, where so much is collected in federal taxes that any federal largesse they receive is overwhelmed. With an extremely high FY 2000 federal tax burden per capita (164 percent of the national average), even above-average federal spending (102 percent of the national average) couldn't prevent Connecticut from having the lowest federal spending-to-tax ratio (0.62). Connecticut receives only 62¢ in federal spending for every dollar its taxpayers send to Washington. Taxpayers in New Jersey (66¢), Nevada (69¢), New Hampshire (71¢), and Illinois (74¢) are similarly burdened.

The More Things Change ...

The accompanying table shows which states' ratios rose or fell between 1990 and 2000. The state that raised its ratio the most is Alaska, where federal spending rose from $1.20 to $1.68 for each dollar in taxes. This 48¢ increase over the decade of the 1990s beat out Hawaii, where federal spending increased 43¢ per dollar of tax, West Virginia (36¢), North Dakota (34¢), Oklahoma (22¢), and Vermont (21¢).

States that have not fared so well include Colorado, Utah, Massachusetts, and Connecticut. Of these, Colorado saw the largest decline, with its federal spending-to-tax ratio falling from $1.16 in FY 1990 to 85¢ in FY 2000.

Bill Ahern is communications director of the Tax Foundation.

For more information ...

The Economic and Budgetary Effects of President Bush's Tax Relief Plan. Dynamic revenue analysis shows that the Bush tax plan would raise disposable incomes, allow the national debt to pay itself off, "cost" far less than thought, and help save Social Security. (The Heritage Foundation, February 2001, 12pp.)

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