US Net Federal Tax Return

Summary

Each American state pays federal taxes on individual income, social security, corporate profits, and other levies. The total of all these taxes was approximately 21% of total national income in 1999. In return, the federal government spends money in each state. However, certain states receive more money–sometimes substantially more–than they paid out in taxes. This cartogram attempts to graphically reveal which states are the “givers” and which are the “takers,” and to what degree.

In general, the Southern and Plains states get back far more in federal dollars than they take in while the Northeast, Midwest, and West Coast states tend to fund this largess. At least in part, the dynamic is driven by the amount of people who retire in the warmer South and draw their federal benefits there, as well as by the fact that there are a larger number of very sizeable military bases in the South (especially Virginia) than there are in the Northeast or Midwest. The Plains states also benefit from immense direct federal agricultural price supports, for which other states must pay.

However, it is striking that the net receivers of federal dollars are states which tend to vote Republican, while net giver states tend to vote Democratic. This is exactly the opposite from what one might expect. Republican voters are inclined to stress self-reliance while Democrats are often accused of taking more than their fair share of taxes. The reality is, surprisingly, far different than their respective philosophies. If one believes political rhetoric, one would expect that Democratic-leaning states are draining cash from hard-working Republican states. In general, just the reverse seems to occur. The Democratic states, in large part, subsidize the defense and farm establishments of Republican “bastion” states.

Main Insights

  • The biggest net “giver” of federal tax money in 1999 was New Jersey–it sends away to other states more federal tax dollars than it gets from Washington. The state is estimated to have sent out more than $20 billion above that which it receives, or approximately 16% of the total federal tax burden imposed on the “givers.” It does not appear that New Jersey’s federal representatives did the best job of keeping their residents’ dollars in the state. California was the second largest “giver,” also sending out about $20 billion, or 16% of the “giver” total.
  • The largest aggregate net “taker”–by a wide margin–was Virginia. The state took in $21 billion more in federal tax dollars than it sent to Washington. This represented 16% of total net transfers to states in 1999. A significant part of the net benefit was due to the very large defense establishment there, particularly the Navy’s main operating base and construction facilities in and around Norfolk.
  • On a per person basis, Connecticut was the most generous state, with each resident giving a net of $2,936 per person to other states. New Jersey was second at $2,464, New Hampshire was third at $1,791, Illinois was fourth at $1,540, and Nevada was fifth at $1,362 per person. Also in the leading ten per capita givers were Minnesota, Delaware, Michigan, Massachusetts, and New York. Perhaps there would be stronger movements in these states for lower tax rates if their voters realized they were such large net “givers.” Note that perennially budget-plagued California was not among the top 10 givers on a per capita basis.
  • Consuming more net federal tax dollars per person than any other state was New Mexico: $3,743 per person. (Why? Think of federally-funded Native American reservations and weapons laboratories.) Alaska was second at $3,139 each, Montana was third at $2,965, Virginia was fourth at $2,924, and North Dakota was fifth at $2,800. Rounding out the top ten net receivers of federal monies per capita were West Virginia, Hawaii, Mississippi, South Dakota, and Alabama.

Other Observations

  • Eighteen out of the fifty states were net “givers” in 1999 (they sent out more federal tax money than they received), supporting the other thirty-two states that were net “takers” (net receivers of federal dollars)..
  • Undoubtedly, defense spending explains a significant amount of the net transfers among states. There appears to be a substantial transfer of wealth from the Northern states and Midwest to the South–where the largest bases are located. It is almost as if the North has at least partially subcontracted national defense to the South..
  • Illinois was the third largest net giver at $19 billion, or 15% of its federal tax burden. New York was fourth at $16.5 billion (13%), while Connecticut was fifth at $10 billion (8%). Also among the leading ten givers were Michigan, Massachusetts, Minnesota, Wisconsin, and Ohio..
  • Maryland was the second largest net receiver of federal tax dollars at $9.4 billion (7% of total net received). That is a stunning number of dollars for such a relatively small state. Alabama was the third largest net “taker,” receiving $8.8 billion (7%), Mississippi was fourth at $6.9 billion (5%), and New Mexico was fifth at $6.8 billion (5%). Other top ten “takers” included Louisiana, Missouri, Kentucky, Oklahoma, and Tennessee. All of the top ten states were in the Old South or bordering states..
  • In 1999, federal taxes paid and federal monies received were very closely balanced for several states. With a net federal benefit of just $49 per person, Georgia had the best balance. Texas was the second best, sending out of state only $90 per person. Other states that were relatively near to being tax-neutral at the state level were Indiana, Ohio, Florida, and North Carolina.

Sources and Methodology

The primary data source for this cartogram is Matt Kane and Glenn Starnes’ excellent work, “Flow of Federal Funds to the States: Fiscal 1999″ (available at: www.nemw.org/). Their reported total federal spending in the states was actually greater than taxes collected, which posed difficulties for the creation of the cartogram since for the graphic to “balance,” the two sums must be equal.

To solve this data discrepancy, additional calculations have been made to account for the difference between what the source calls “actual federal spending” and “actual federal burden.” State spending was approximately $319 million lower than the total taxes collected in 1999, so total taxes collected were reduced proportionally by state to allow the total to equal that of spending. Therefore, the cartogram attempts to show, as closely as possible, what the net federal tax burden by state would be if state collections were equal to revenue, at least as far as federal tax dollars are concerned. This methodology may not be correct to the exact dollar, but it is assessed to be very close to what the true state of federal-state finances were in 1999.