A Lot of States Depend on the Feds

One of the things that struck me in reading Allysia Finley’s column at the Wall Street Journal was how, er, selective it was. Here’s a snippet:

The uproar last week over the Trump administration’s short-lived pause on federal grants exposed how dependent Democratic states and cities have become on Washington handouts. Call it a welfare trap.

“Fifteen percent of our workforce are funded by those dollars,” New Jersey Gov. Phil Murphy groused. A lawsuit brought by all 22 states with Democratic attorneys general plus the District of Columbia detailed a litany of programs funded by Uncle Sam. Washington state said it received $121 million last year for allergy and infectious-disease research. Illinois claimed federal Medicaid funds made up 60% of its 2023 spending on “critical health services.”

“Washington, do you realize the consequences of what you’ve done here? And do you really want us to not fund law enforcement?” New York Gov. Kathy Hochul declared. “Do you really want us to not fund roads and bridges?” What are New York state taxes for?

The title of the column is “Democratic States Are Wards of Washington”. I agree with her that some Democratic states are unduly dependent on federal spending. Some aren’t. Some Republican states are unduly dependent on federal spending. Here’s a handy map of per capita federal spending in each state:

The states with the highest per capita spending are Alaska, Rhode Island, and New Mexico. However, Wyoming, Montana, Louisiana, and Kentucky are also highly dependent on federal spending. Which states are the most dependent?

As you can see nearly a third of Montana's, Louisiana's, and Kentucky's state budgets come from the federal government. A quarter of Rhode Island's, Massachusetts's, and Maryland's budgets come from the federal government.

I don't think that Ms. Finley is telling the whole story. I can see several stories in those maps. One of them is that too many states depend too heavily on the federal government. I don't think you can tell a partisan story from them.

9 comments… add one
  • Larry Link

    What is the return on all that federal spending, does it not create wealth for counties, towns, cities, states and individuals. If the fed is just giving all those dollars away wouldn’t the bucket have been empty long ago?

  • steve Link

    You need to balance this with taxes paid. Blue states like Massachusetts pay in much more in taxes than they receive in return.

    Steve

  • There’s an accounting of that here. Once again, it’s not that simple. So, for example, Vermont is among those taxed least for each dollar returned. New Mexico is the worst.

  • Andy Link

    I’m somewhat suspicious of using 2021 data, which will include a lot of Covid spending.

    The Rockefeller Institute has probably the best data, although it’s important to note that one of its goals is to show how unfair the balance of payments are for New York.

    https://rockinst.org/issue-areas/fiscal-analysis/balance-of-payments-portal/

    I’ve done quite a bit of research on this and have a few points:
    – Individuals and businesses pay taxes to the feds, not states, and in the reverse, some spending goes to states, some to local government, some to organizations, and some to individuals.
    – Since we have progressive taxes, states with a lot of wealthy people and high incomes tend to pay more and have a positive balance or closer to positive, especially if they don’t have a lot of federal facilities. This is why MA and NJ are usually at the top of the list because they have a lot of wealthy people but don’t have a lot of federal facilities and activities.
    – On the other side, states without a lot of rich people pay less and if those states have a lot of federal activities, the balance is in the other direction. This is why New Mexico is always high on the list – it’s a state with lower incomes and not many rich people, yet it has a lot of expensive federal facilities related to nuclear labs and military bases. Kentucky is similar but with a lot of contracting. Virginia has high incomes, but also a huge amount of federal activities from military bases to the Northern VA DC spillover. Alaska is sparsely populated but has military bases and a lot of federal activities.

    Overall, I don’t think there is any kind of “blue state” vs “red state” pattern. It really depends on how many wealthy people a state has vs how many federal activities they have, and that is not a simple red-blue situation.

  • Drew Link

    There are any number of these types of studies. Interestingly, they rarely agree. Hmmm. Agendas, anyone?

    One that I found I thought quite interesting. You know, only people pay taxes; only people receive benefits. Not governments, really.
    Studies based on govt in/govt out I find opportunistic. Partisan.

    The basic point of the study was that on a per capita basis, almost all states are breakeven, within reasonable tolerance. (CA people, wearing their Superman shirts, will be horrified; it was 1 to 1 for CA) Every man, woman and child in a state hands the Feds a dollar, they hand one back. Again, only people pay taxes, only people receive benefits. Its even. Problem? Well, yes:

    I’m open, but convince me its not just a poker game: send money to Washington, Washington fucks syphon the vig, Washington sends money back. How can it really be 1 to 1?

    The equation doesn’t work, its called the deficit, and cumulatively the national debt.

  • Andy Link

    Drew,

    It’s not 1-to-1 in aggregate because of deficit spending.

    Only counting individual taxes paid and individual benefits received is one way people skew the data, and on that metric, the wealthy states do look like they are redistributing to the poorer states.

    I think it’s important to include all federal spending. A contractor working at Lockheed, for example, is getting paid with federal dollars, albeit indirectly.

  • TastyBits Link

    @Andy
    Thanks. Nice write-up.

  • steve Link

    Andy- Good pick up on 2021. I missed that and I agree it’s a poor choice of year. It’s such an anomalous year that I would suspect it chosen by someone with a POV rather than an unbiased choice. Hmm, guess I shouldn’t be surprised it’s from the WSJ.

    I agree that this is partially due to the richer people living in blue states (wonder why that happens?) and a lot of military bases in red states. But let’s remember that Congress uses the military for workfare spending. In lots of cases those bases are in those red (largely southern) states because their politicians lobbied for them or got them as rewards. It’s not as if we are guaranteed that we will never face war in cooler climates.

    Steve

  • Drew Link

    Couldn’t agree with you more, Andy.

    Be very careful of data and “analysis” in a partisan world. Talk to Steve…..

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