Source: Tax Foundation http://www.taxfoundation.org/taxingspending.html and the University of Michigan http://www-personal.umich.edu/~mejn/election/

Federal Taxing and Spending Benefit Some States, Leave Others Paying Bill

Plotted by TWP from the data in the Table below.  The lower 2004 U.S. election map is weighted by the population

New Mexico gets $1.99 for every dollar in taxes, New Jersey only 57 cents

WASHINGTON, D.C.—Some states feast at the expense of others, according to the Tax Foundation’s latest annual analysis of federal taxing and spending patterns.

All taxpayers know that the federal government uses tax and spending policy to redistribute income from citizens with high incomes to those who make little, but citizens are less aware about geographically based income redistribution. Tax Foundation Senior Economist Scott Moody compares the federal tax burden in each state with Census Bureau data (2003) on federal spending in each state. The result is a ranking of which states got the best deal in 2003 from Uncle Sam’s tax and spending policies.

Federally Favored States
“During fiscal 2003, taxpayers in New Mexico benefited the most from the give-and-take with Uncle Sam,” said Moody. New Mexico received $1.99 in federal outlays for every $1.00 the state’s taxpayers sent to Uncle Sam. Other big winners were Alaska ($1.89), Mississippi ($1.83), and West Virginia ($1.82). (See tables below).

The District of Columbia’s Special Status
Though not comparable as a state, the District of Columbia is by far the biggest beneficiary of federal spending: In 2003 it received $6.59 in federal outlays for every dollar its taxpayers sent to the U.S. Treasury.

“The District’s share of federal largesse amounted to $60,109 for every man, woman and child,” said Moody. “That’s more than ten times the national average.”

States That Help Others
If some states are beneficiaries, then naturally some must be benefactors—those states where so much is collected in federal taxes that any federal spending they receive is overwhelmed.

New York has often been the biggest payer in the Tax Foundation’s annual comparison of taxes to spending, which inspired Daniel Patrick Moynihan and the Kennedy School of Government to launch their annual reference book comparing state taxes with spending (www.ksg.harvard.edu/fisc99) more than 25 years ago. In recent years, however, other states have eclipsed New York for the “blessing” of being the state that gives far more than it receives.

Combining the third highest tax burden per capita with the ninth lowest federal spending, New Jersey had the lowest federal spending-to-tax ratio (57¢). Other states that had low federal spending-to-tax ratios in FY 2003 are New Hampshire (64¢), Connecticut (65¢), Minnesota (70¢), Nevada (70¢), and Illinois (73¢).

Changing Ranks
The state that raised its ratio the most over the past ten years is Alaska where federal spending rose from $1.30 to $1.89 for each dollar in taxes. This 59-cent increase beats out Alabama, where federal spending increased 35¢ per dollar of tax, West Virginia (33¢ more spending per dollar), and Kentucky (32¢ more spending per dollar).

States where the ratio dropped most are Colorado and Massachusetts. Colorado has seen its federal spending-to-tax ratio fall 20¢ from $1.00 in FY 1994 to 80¢ in FY 2003. Massachusetts’s has dropped 18¢.

What Affects Rankings?
Federal spending on defense and other procurement dollars are often funneled to the states of powerful Members of Congress, and state governments can grab more federal grant money by skillfully manipulating their spending to comply with federal regulations.
However, demography may be more influential than politics. States with more residents on Social Security, Medicare and other large federal entitlements are bound to rank fairly high. Similarly, the high spending levels in Virginia, Maryland and the District of Columbia are explained by the predominance of federal employees.

On the tax side of the equation, states with higher incomes per capita—New Jersey stands out—pay much higher federal taxes per capita because of the income tax’s progressive structure. The citizens in these high-income, high-tax states do not always live better or save more than people in low-income, low-tax states because the cost of living is usually that much higher or more.