FEDERAL TAXES AND SPENDING

May 22, 2006

Federal tax and spending splits the nation between "donor states" and "beneficiary states," says Curtis Dubay of the Tax Foundation.

Thanks to a steeply progressive federal income tax, states with higher incomes pay vastly higher federal taxes; ironically, most of these high-paying states are the so-called blue states that have generally elected politicians who support a more steeply progressive tax system even though their own constituents bear a greater share of the burden, says Dubay.

According to a study of the relationship between the federal tax burden and the amount of federal spending in fiscal year 2004, New Mexico was the biggest beneficiary, getting $2 back in spending for every tax dollar, says Dubay.

Moreover:

  • New Jersey taxpayers were the most generous, sending one dollar to Washington for just 55 cents in spending.
  • High-income people who pay income tax at the highest rates are far more numerous in the donor states; but in states where average earnings are lower, a greater percentage of tax is paid at the 10 percent and 15 percent rates.
  • States that had low federal spending-to-tax ratios in 2004 were Connecticut (66 cents), New Hampshire (67 cents), Minnesota (69 cents) and Illinois (73 cents).
  • The state that raised its ratio the most between 1994 and 2004 was Alaska where federal spending rose from $1.30 to $1.87 for each dollar in taxes; and states where the ratio dropped most are Colorado (21 cents), Massachusetts (20 cents) and California (19 cents).

Furthermore, the correlation between donor states and blue states is fairly strong: 13 of the 19 states that Senator Kerry won in 2004 sent more to Washington in taxes than they got back in spending, and most of the red states profit from federal taxing and spending: President Bush won 25 of the 31 states, says Dubay.

Source: Editorial, "Federal Taxing and Spending Benefit Some States, Leave Others Paying Bill," Tax Foundation, March 16, 2006; based upon: Curtis S. Dubay, "Federal Tax Burdens and Expenditures by State," Tax Foundation, Special Report No. 139, March 16, 2006.

 

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