NCPA - National Center for Policy Analysis

Federal Taxing and Spending Benefit Some States

October 30, 2003

Some states feast at the expense of others, according to economist Scott Moody (Tax Foundation). Taxpayers know that the federal government uses tax and spending policy to redistribute money between income groups, but geographically based income redistribution is less known.

Moody compares the federal tax burden in each state with the Census Bureau's most recent data (2002) on federal spending in each state. The result is a ranking of which states got the best deal in 2002 from the federal government's tax and spending policies:

  • New Mexico benefited the most; the state received $2.37 in federal outlays for every $1.00 the state's taxpayers sent to the federal government.
  • Though not a state, the District of Columbia is the biggest beneficiary of federal spending; in 2002 it received $6.44 in federal outlays for every dollar its taxpayers sent the U.S. Treasury.
  • New Jersey had the lowest federal spending-to-tax ratio ($0.62) followed by Connecticut ($0.65), New Hampshire ($0.66), Nevada ($0.74), Massachusetts ($0.75) and California ($0.76).
  • Alaska raised its ratio the most over the past ten years as its federal spending increased from $1.26 to $1.91 for each dollar in taxes.
  • Colorado is the state where the ratio dropped most; its federal spending-to-tax ratio fell $0.28 from $1.06 in FY 1992 to $0.78 in FY 2002.

According to Moody, federal spending on defense and other procurement dollars are often funneled to the state of powerful congressmen. Also, state governments can grab more federal grant money by skillfully manipulating their spending to comply with federal regulations.

Source: Scott Moody, "Federal Tax and Spending Patterns Benefit Some States, Leave Other Footing the Bill," Tax Features, July/August 2003, Tax Foundation.


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