Which States Rely Most On Federal Spending?

Tyler Durden's picture

Submitted by Ryan McMaken via The Mises Institute,

Last month, we looked at military spending by state, and how some states — South Carolina and Virginia, for example — have military spending as a major component of their local economies. Proposing cuts to government spending via military spending would likely be political suicide in any of these places.

But of course military spending is just one type of government spending, and some states are heavily dependent on government spending whether the spending be on civilian federal employees, the military, or transfer payments such as Social Security and Medicare.

Federal Spending as a Percentage of State GDP

If we look at federal spending as a proportion of each state's overall GDP, we find that the recipients are not exactly evenly distributed:

Source: Pew Charitable Trusts  (based on data from 2004–2013)

This is all federal spending, so these totals are a combination of military spending, social welfare programs such as Medicare, and ordinary civilian federal spending, including civilian research facilities and other programs funded by federal grants.

These are proportional numbers, so they are a function of both the amount of federal spending as well as the overall size of GDP. So, in California, for example, which receives immense amounts of government spending, is nevertheless a state where federal spending is offset by a very large private sector. In a more rural state with few major private industries, such as New Mexico, the state shows up as being highly reliant on federal spending.

By this measure, the state most reliant on federal spending is Mississippi where federal spending is equal to 32 percent of the state's GDP. The state least reliant on federal spending is Wyoming where federal spending is equal to 11 percent of the state's GDP:

Source: Pew Charitable Trusts  (based on data from 2004–2013)

The above measure gives us a sense of how much federal spending is taking place relative to overall economic activity. But, it tells us little about how much the feds are spending in each state relative to the tax revenue being produced in each state.

To discover that, we need to compare federal spending to tax collections from each state. So, I took gross tax collection by state, and then subtracted refund totals. I then compared the "net" collections to Pew's total federal spending data in each state. (The tax data used was 2013 data.) We can then measure the result in terms of dollars spend in each state per dollar in tax revenue collected. States that have a value of less than a dollar in the map below receive less than a dollar in federal spending for every dollar in taxes paid from that state. So, for example, Ohio receives 91 cents in federal spending for every dollar collected in taxes from Ohio:

I've divided this graph up into "net tax payer states," "break-even states" and "net tax receiver" states. The lightest shade of blue are states that, by far, pay in more than they receive back, such as New Jersey and Minnesota. The next lightest shade of blue are states that are more or less "break even" in the sense that spending and tax collections hover somewhat around a 1-for-1 relationship. The darker blue states are states that receive considerably more in federal spending than they pay in taxes.

Here are all states, including values:

Naturally, these values aren't spread evenly within the states themselves, either. Areas that are more rural and reliant on agriculture will tend to be net tax receiver areas both because farmers and ranchers receive a lot of government subsidies, and also because agricultural work tends to have lower productivity than urban work.

Urban areas, in contrast, produce most of the tax revenue, so highly urbanized states will tend to more often be "break even" or "net tax payer" states.

Other Considerations

One thing that must not be ignored is the fact that the US government spends more than it takes in nationwide. During 2013, for example, the federal government spent a dollar for every 80 cents it took in via taxes.

Nationwide, the tax-spending ratio is not one dollar, but it about $1.20. So, states that are getting around $1.20 back for every dollar extracted in taxes are really just at the national average.

This is being made possible by old-fashioned deficit spending and also by monetization of the debt which the Federal Reserve facilitates by expanding the money supply. Once interest rates rise or the international value of the dollar begins to fall significantly, this sort of overspending will no longer be possible, and many states will find themselves in dire straits. (States that are "net tax payer" or "break even" states will adjust the best to any significant disruptions in federal spending.)

On the other hand, the realities of the central bank tend to favor the richer, more urban states at the expense of the poorer tax-receiver states.

For example, the Fed's war on interest rates tends to more heavily impact communities that have a relatively large number of modest savers and risk-averse investors. By driving down interest rates so far, the Fed is favoring wealthy investors with access to high-yield investments at the expense of ordinary Main-Street households who rely on more conservative, easily-accessed forms of saving and investment, such as savings accounts and CDs. As a result, capital accumulation is negatively impacted most in parts of the country that produce the least tax revenue and have less productive workers.

In other words, the central banking regime perpetuates the current imbalance between net tax payer states and net tax receiver states by making it more difficult for poorer parts of the country to accumulate wealth and increase productivity.

Simultaneously, the money creation process tends to favor the financial sectors in large urban areas at the expense of less urban and poorer areas. Thanks to the way the central bank creates money, it is the urban investor classes that get to spend the new money first — before prices adjust to the new, larger money supply — while more rural, less urban, and less productive parts of  the country receive this money only after prices have risen. This further perpetuates the tax-spending imbalance.

So while it is true that urban, coastal taxpayers are often paying more in taxes and financing government spending in other parts of the country, those same taxpayers do indeed benefit from national policy that favors the investor class (and those who work with them) over others. They're paying more taxes because they have higher incomes, but these higher incomes come, to a certain extent, at the expense of Americans outside these corridors of financial power.

Beyond the monetary angle, of course, is the fact that states also are restrained in their ability to fully utilize resources in their own states by federal regulations.

Western states, especially, are not able to access resources on federal lands except in a manner consistent with federal laws written primarily by politicians from outside the state. Such policies are unresponsive to local needs and economic realities. 

And, of course, trade regulations, when implemented at the national level, may have significant negative impacts on certain states that are not free to negotiate their own trade arrangements with foreign economies.

The Jones Act and trade barriers on sugar are just two examples.

While we can see that the net tax receiver states do indeed benefit from large amounts of federal spending, we must also take into account the fact that federal policy may also be hobbling those local economies while favoring and redirecting wealth toward the net tax payer states.

That is, the tax-and-spend wealth transfers from net taxpayer states to net tax receiver states could be viewed as something that merely helps to diminish the effects of impoverishment that are the result of national policy. Were it not for these policies, it is entirely possible that these net tax receiver areas would not have become so reliant on federal spending in the first place.

 

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max2205's picture

Suckers and fuckers 

Gaius Frakkin' Baltar's picture

The “productive” urban centers would be much less so if they had to pay the market price (unsubsidized) for food grown in the rural areas.

Beltain's picture

Not to mention those urban centers are also where so much of the taxes are actually collected that were produced by other states. Actual production is not even figured into these charts only how much the grocery clerks were able to collect. Most of the urban centers are nothing more than middle men.

 

Twee Surgeon's picture

Urban Centers ? What Urban Centers do you speak of ? In the USA most "Urban Centers" roll up the doors at 2am.

New York city might be a thriving Urban Center, 24/7, but most US cities are dead zones after dark, merely places where Bars and Restaurants congregate, office workers, office work at various non-productive frauds and Ponzi's.  A cluster of Hipsters and Homosexuals does not make a viable economy, a retro-revisionist punk rock band at an art gallery serving free Monkey turd coffee might seem glamorous for some but all the shiny shoes are made in China. There is no Urban Center in American cities, only places where insurance companies build towers, close to one another for safety, tradition and convenience. CoonBarrio Borders, Freeway Escape paths.

Come in, tis dangerous, tis Trendy, producing nothing but Godhate Manmalice.

wee-weed up's picture

Mississippi? Someone please explain...

Automatic Choke's picture

We can argue about this and bitch about it, but in the end we accept it.

Some states are net agro producers, and we all benefit.  Some states have military bases that we benefit (?) from.  etc etc etc.

Then there are disasters....we happily cross state lines when florida has hurricanes and california has earthquakes....the fed is the great (?) equalizer that spreads the wealth and compassion around.

 

Now...whether or not you agree that any of that should be done (don't flame me if you don't like the process), replace the states with the countries of Europe.

Euro tried to be one currency, tied to one set of fiscal policies, but there was no mechanism for the money to flow from delaware to mississippi, etc.  No wonder they have troubles.

acetinker's picture

No wonder WE have trouble.  Except for that, carry on soldier!

Depends on what you call 'money' too.

Do you honestly think Delaware produces more value than Mississippi?

If so, please explain.

Just know, that I know Delaware's status as a haven for bankers, before you answer.

The crack whores in Mississippi enjoy no such privilege.

Seems minor by comparison, doesn't it?

Greenie's picture

District of Columbia: All filth

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Richard Chesler Mar 6, 2016 6:31 PM

Oh bullshit. Maine and New Mexico were at the top of the above lists. Not many blacks in either of those states fuckhead.

RafterManFMJ's picture

They're importing Somalis by the plane load in Maine, so that's going to change.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) RafterManFMJ Mar 6, 2016 8:29 PM

Only to Lewiston. And the locals despise them.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) RafterManFMJ Mar 6, 2016 8:30 PM

DEL

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) HRH of Aquitaine Mar 6, 2016 8:33 PM

My comment was to Richard Cheslar. FU asshat.

augustusgloop's picture

And yet...MS, AL, & SC have voted Republican in every election since 1980 and each have 2 GOP Sen. WV & KY have been in the Republican block since 2000. 2/3 of MS's house members are from the GOP. If you further into the data. You'll see that MS doesn't actually rant in the top (bottom) 5 states for direct payments. Lot's of the Federal aid comes in the form of govt. contracts etc. (Hence Virginia being so high). Thank you GOP lawmakers for being excellent Pork Barrel politicions. 

https://wallethub.com/edu/states-most-least-dependent-on-the-federal-gov...

sun tzu's picture

Yet dems keep voting for higher federal taxes and more spending

jerry_theking_lawler's picture

Did you care to even read the article....and comprehend it?

The people of MS, AL & SC know the problem and are impoverished by the system. The Dems only want more of this...at least the Republicans speak on this subject some and try, on occasion, to represent this group.

Frankie Carbone's picture

I hate to admit it, but that graph REALLY correlates well with the one in this article. 

Holy crap. 

DeathMerchant's picture

What kind of idiot would red arrow you when the facts are what they are. Your link is right on the fucking money. Apologists and their aversion to reality.

valjoux7750's picture

Theres only 4000 niggers in wyoming? 

sun tzu's picture

How about the $4.5 trillion that went from the Fed to Wall Street? Is that included?

JLee2027's picture

No. The Fed is a private Corporation and not part of the Federal Government.

JLee2027's picture

A few years back I calculated that 61% of Maryland's annual buget comes from the Feds.

Maybe I was wrong, but I think not.

NoPension's picture

Gotta be, at least. If the Eagle stopped shitting, Maryland would dry up and blow away.

Cognitive Dissonance's picture

That's the game, isn't it? To see who can get more than they give. Who says we don't live in a socialist paradise?

Some are just more equal than others.

knukles's picture

One for all and all for one.  Equality, fraternity, whateverity.
Nice.  Makes all the sense in the world.  The Progressive states get milked ... aw, nevermind.

turnoffthewater's picture

I didn't know the district of Columbia was a state?

Lumberjack's picture

Both Mississipi and Maine have major ship building yards owned by Huntington- Ingalls and General Dynamics respectively. Both do major work for the Navy and are headquartered in Virginia and the bulk of the money ends up there... Hopefully that was factored in.

Umh's picture

There are at least two major shipyards in Virginia and one of them is Huntington-Ingalls.

Lumberjack's picture

And another in CT owned by GD

The arguement I make is that the State didn't get the money first. Corporate did and thus the state the HQ is in would be the reciever of federal funds. Unless Delaware (state those entities are incorporated in) would be the reciever of said funds.

Lumberjack's picture

Massachusetts is wrong. How many billions were wasted on green energy companies?

Shad_ow's picture

Yes. Some States have Air Force or other military bases.  Alabma has the Huntsville Space Center.  Not all the expenditures are welfare, which should definitely be reduced.  All government spending should be reduced but this piece fails by not breaking down the different allotment uses.

 

If it was up to me I'd stop all the federal expenditures except military and federal highways and turn all the power back over to the States.  We all know that's not going to happen.

Tall Tom's picture

If it was up to me I'd stop all the federal expenditures except military and federal highways and turn all the power back over to the States.  We all know that's not going to happen.

 

If it was up to me I'd stop all the federal expenditures except military and federal highways and turn all the power back over to the States.  We all know that's not going to happen....WILLINGLY.

 

FIFY.

 

Yes it will happen.

 

The USA will BALKANIZE by 2025.

 

Insolvency and internal collapse by 2020.

 

It cannot continue on this trajectory and there is no saving it.

hoyeru's picture
hoyeru (not verified) Tall Tom Mar 6, 2016 9:33 PM

yeah right. Keep on fantasicing

VWAndy's picture

The state government is dependent on gravy. The productive people dont need that crap.

Davilis's picture

So Mississippi = Greece. Let's put razorwire around it and put all of the illegal immigrants there. We'll call it the Trump/Merkel Doctrine.

sun tzu's picture

Only if you leave out the $4.5 trillion the Wall St bankers got from the Fed. 

Ignorance is bliss's picture

Fuck Delaware...pass the teat. /sarc

Tall Tom's picture

Deleware seems to be PRODUCERS.

 

But their GDP revenues are directly due to Tax Laws which are lenient for the Financial Industry.

 

California and Texas actually have Industrial Capacity. And while both states are below the average...

 

One unfortunate fact is that California is migrating in the wrong direction and becoming more reliant upon getting Tax Dollars back from Uncle Scam. We used to get back less that a Dollar the last time that I read this report...years ago.

 

Freedom from Federal Government power and oversight is inversely proportional tn the reliance of the State's finances on receipts of Federal Government Dollars.

 

If the Feds do not like a State Government's political policies then they just cut off the inflows of revenue which can  force a state into an economic slowdown.

 

To be free from Federal Government influence a State must do all in its power to diminish the dependence upon Federal Government spending as a source of revenue.

 

You need to pressure your State Representatives to inhibit Federal Spending within your State in order to retain States' Rights and, ideally, increasing those rights..

 

Of course this demands sacrifice.

 

Yet Liberty and Freedom from the Federal Government are worth much more than Yellen Bux that the Federal Government confiscated from you in the first place..

 

It will happen eventually as secession movements bring out to fruition in the balkanizing of the former Federal Republic.

 

Deleware seems to be in good shape.

fnord's picture

"and also because agricultural work tends to have lower productivity than urban work." WTF??? This is what's wrong with this country

Babaloo's picture

This is a mathematical function.  Farm production divided by farmers (to put it in its simplest form.)  To say "that's what's wrong with this country" makes no sense whatsoever.  

fnord's picture

Hyperbole maybe. My point being that our collective definition of 'productive' is fucked beyond repair. The majority of urban work is destructive and comsumptive. Engineering should produce value through efficiency increases and new technologies to improve quality of life. Digital is hard to evaluate.

conspicio's picture

I suppose no one at the Pew Trust is colorblind, as that multiple shades of pepto bismol chart breaks every chart rule. Even for the not color blind, good luck telling which gradation is which in the middle.

Some are donors, some are recipients in all levels of our interaction with government. Seniors without children who pay property taxes to support schools...Donors. Airline passengers who pay to sustain the overall system, donors and recipients. Every city that enacts a stadium tax...donors...and the team owner...recipient. Almost like we've agreed to let a bunch of someones pick winners and losers. Huh, imagine that.

Government, just a name for those things we choose to do together (TM)

Obadiah's picture

gee isnt Nebraska full of ranchers and farmers  WTF?

I cry bullshit on the data and anal-a-sis

Tall Tom's picture

And not just grain silos...but Nuclear Missile silos.

RMolineaux's picture

Only an Austrian would conclude that a large federal participation empoverishes a state.  How does he explain Virginia?  The simple explanation is the location of the federal government.  But that would be too simple for an Austrian to understand. 

Money_for_Nothing's picture

Lots of Virginia is not prosperous. The parts west have very rich and very poor. More poor than rich. But lots of beautiful estates with Walmart towns and cities between. EBT cards, WIC, Section 8 housing.

sun tzu's picture

So the federal government taking trillions from productive people and borrowing trillions more to dump around DC is good for the entire country? Simple enough for a keynesian