Do Blue States Subsidize Red States? Or the Other Way Around?

It really depends on how you run the numbers.
https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/
https://www.governing.com/week-in-finance/gov-taxpayers-10-states-give-more-feds-than-get-back.html

This argument “high tax blue states subsidize low tax red states!” or the other way around, when talking about tax policy. The typical states that authors bring up will be California, Mississippi, and New York. One west cost blue, one east coast blue, and one southern red.

So the first question, is do we treat all “Federal Spending” the same? I like to start this off with a “no.” Since there is not an even distribution of military bases across the states, it makes sense to eliminate military spending from the conversation. For example, Montana has very few military bases, and Texas has quite a few military bases. I don’t want to ignore the economic benefit of the military presence in a state, but I want to put it aside as Federal spending in a state, not Federal spending FOR a state.

The second thing I like to remove, is Federal salaries and retirement spending in a state. Once again, this is Federal spending for Federal purposes, not State purposes. For things like “retirement spending” former Federal employees have freedom to choose whether to retire to Florida or not, so it makes sense to not count that as a wealth transfer from a any state to any other state, as it should rightly be counted as a Federal expenditure.

So what that leaves us with, is non-retirement benefits, grants, and contracts. All these numbers are from Wikipedia, which is honestly as legit as a media source as anything else these days.

STATE Non-Retirement Grants Contracts TOTAL
Virginia $2,168 $1,099 $6,197 $9,464
Maryland $2,552 $1,678 $4,318 $8,548
New Mexico $2,624 $2,249 $3,211 $8,084
Alaska $2,162 $3,604 $2,215 $7,981
Connecticut $2,927 $1,960 $2,892 $7,779
Massachusetts $3,107 $2,247 $2,177 $7,531
Maine $2,993 $2,399 $1,565 $6,957
Mississippi $3,181 $1,723 $1,934 $6,838
Vermont $2,760 $3,013 $628 $6,401
Alabama $3,033 $1,273 $2,000 $6,306
Missouri $2,749 $1,914 $1,643 $6,306
New York $3,046 $2,690 $547 $6,283
Rhode Island $3,252 $2,292 $729 $6,273
Pennsylvania $3,158 $1,714 $1,267 $6,139
Arizona $2,756 $1,367 $1,864 $5,987
West Virginia $3,158 $2,153 $622 $5,933
Kentucky $2,958 $1,502 $1,464 $5,924
Hawaii $2,453 $2,052 $1,351 $5,856
Louisiana $2,994 $1,950 $743 $5,687
Washington $2,394 $1,512 $1,683 $5,589
New Jersey $3,106 $1,730 $724 $5,560
Tennessee $2,938 $1,444 $1,176 $5,558
California $2,570 $1,740 $1,243 $5,553
Michigan $3,179 $1,666 $486 $5,331
Idaho $2,251 $1,474 $1,597 $5,322
Texas $2,455 $1,330 $1,477 $5,262
South Carolina $2,856 $1,193 $1,139 $5,188
Florida $3,403 $975 $721 $5,099
Delaware $2,882 $1,882 $294 $5,058
New Hampshire $2,440 $1,246 $1,351 $5,037
Montana $2,356 $2,238 $436 $5,030
Arkansas $2,810 $1,853 $319 $4,982
Colorado $2,068 $1,346 $1,521 $4,935
North Dakota $2,072 $2,165 $678 $4,915
South Dakota $2,348 $1,844 $669 $4,861
Oklahoma $2,636 $1,662 $528 $4,826
Ohio $2,868 $1,402 $541 $4,811
North Carolina $2,750 $1,442 $503 $4,695
Illinois $2,776 $1,367 $504 $4,647
Indiana $2,682 $1,436 $478 $4,596
Minnesota $2,354 $1,670 $562 $4,586
Iowa $2,491 $1,548 $518 $4,557
Wisconsin $2,469 $1,502 $561 $4,532
Georgia $2,561 $1,163 $763 $4,487
Nevada $2,448 $975 $1,033 $4,456
Wyoming $1,986 $1,856 $544 $4,386
Nebraska $2,301 $1,359 $518 $4,178
Oregon $2,669 $1,149 $286 $4,104
Kansas $2,511 $652 $594 $3,757
Utah $1,740 $1,212 $771 $3,723

Now it could be argued that “contracts” should be pulled because these are contracts for the Federal Government, and not necessarily focused on spending FOR the states.

State Non-Retirement Grants TOTAL
Vermont $2,760 $3,013 $5,773
Alaska $2,162 $3,604 $5,766
New York $3,046 $2,690 $5,736
Rhode Island $3,252 $2,292 $5,544
Maine $2,993 $2,399 $5,392
Massachusetts $3,107 $2,247 $5,354
West Virginia $3,158 $2,153 $5,311
Louisiana $2,994 $1,950 $4,944
Mississippi $3,181 $1,723 $4,904
Connecticut $2,927 $1,960 $4,887
New Mexico $2,624 $2,249 $4,873
Pennsylvania $3,158 $1,714 $4,872
Michigan $3,179 $1,666 $4,845
New Jersey $3,106 $1,730 $4,836
Delaware $2,882 $1,882 $4,764
Missouri $2,749 $1,914 $4,663
Arkansas $2,810 $1,853 $4,663
Montana $2,356 $2,238 $4,594
Hawaii $2,453 $2,052 $4,505
Kentucky $2,958 $1,502 $4,460
Tennessee $2,938 $1,444 $4,382
Florida $3,403 $975 $4,378
California $2,570 $1,740 $4,310
Alabama $3,033 $1,273 $4,306
Oklahoma $2,636 $1,662 $4,298
Ohio $2,868 $1,402 $4,270
North Dakota $2,072 $2,165 $4,237
Maryland $2,552 $1,678 $4,230
South Dakota $2,348 $1,844 $4,192
North Carolina $2,750 $1,442 $4,192
Illinois $2,776 $1,367 $4,143
Arizona $2,756 $1,367 $4,123
Indiana $2,682 $1,436 $4,118
South Carolina $2,856 $1,193 $4,049
Iowa $2,491 $1,548 $4,039
Minnesota $2,354 $1,670 $4,024
Wisconsin $2,469 $1,502 $3,971
Washington $2,394 $1,512 $3,906
Wyoming $1,986 $1,856 $3,842
Oregon $2,669 $1,149 $3,818
Texas $2,455 $1,330 $3,785
Idaho $2,251 $1,474 $3,725
Georgia $2,561 $1,163 $3,724
New Hampshire $2,440 $1,246 $3,686
Nebraska $2,301 $1,359 $3,660
Nevada $2,448 $975 $3,423
Colorado $2,068 $1,346 $3,414
Virginia $2,168 $1,099 $3,267
Kansas $2,511 $652 $3,163
Utah $1,740 $1,212 $2,952

Poor Utah, coming in at the bottom of the list.

Now there are those who argue that it’s irresponsible to pull out military, salaries, retirement payments, and just count total state contributions to Federal and total Federal expenditures in that state. This is a method, but it ignores the reality that it is cheaper for the Federal Government to house, feed, and train the Army in Georgia than it is in Maryland. Significantly cheaper. This is why the DOD has been quietly shifting troops away from the DC area ever since the collapse of the Soviet Union. And low tax Red States are cheaper than high tax Blue States, which is why Texas has way more Army bases than California.

The other argument is “you need to distribute this per capita, otherwise it doesn’t paint the correct picture!” is another argument that I see made frequently. In short, not really. Once we’ve removed Federal Spending for Federal Purposes (Salaries, Retirement, Contracts) then all we are left with is non-retirement spending and grants, things that should be putting money into State stuff for State purposes. At that point, the population density and demographics of the states is irrelevant unless you want to really point out that Connecticut has more wealthy urban white families and Alabama has more poor rural black families. Of course somehow it’s “not racist” to demand the data be shown “per capita” but totally racist to point out how “per capita” is meaningless because Arizona has an entirely different ethnic/racial mix than Maine.

So to sum it up, Federal spending to the states for State purposes (welfare, medical, etc) is a smaller sum of money than total Federal spending per state. A lot of that total spending in cheaper states is because individuals choose to live in lower tax areas after retirement, or the Federal Government has deliberately placed a Federal activity (such as a military base) there to save cost versus a higher expense area. So it is a poor argument to say that “poor red state receives more money than it pays! tax policy meme for the win!” without actually looking at WHAT those Federal dollars are being spent on.

Here’s an example:

https://www.defense.gov/explore/story/Article/1789129/which-state-ranks-highest-in-military-spending/

Top 10 States for Total Defense Spending
1: California, $49 billion
2: Virginia, $46.2 billion
3: Texas, $37.7 billion
4: Maryland, $21.1 billion
5: Florida, $19.2 billion
6: Washington, $15.2 billion
7: Connecticut, $15 billion
8: Georgia, $13.2 billion
9: Pennsylvania, $12.1 billion
10: Alabama, $10.9 billion

The states with the most total active duty and reserve members of the military, as of September 2017, were: https://www.governing.com/gov-data/public-workforce-salaries/military-civilian-active-duty-employee-workforce-numbers-by-state.html

1. California: 184,540
2. Texas: 164,234
3. Virginia: 115,280
4. North Carolina: 112,951
5. Florida: 92,249
6. Georgia: 88,089
7. Washington: 64,066
8. South Carolina: 55,369
9. New York: 48,974
10. Colorado: 47,636

California comes in #1 both lists (huge Navy, USMC, and Air Force strategic basing for the Pacific theater), but Virginia costs more than Texas, but houses fewer troops. Maryland, coming in at #4 for expense, doesn’t even make the top ten list for most troops at all, although neither does Alabama or Pennsylvania. North and South Carolina look like absolute bargains as they are not on the top ten for total defense spending, but occupy position #4 and #8 for total troop strength. Notice that “Hawaii” is not on this list, but if you look at “per capita” there is loads of military spending in Hawaii (due to being strategically important for the Pacific theater).

The take away. If you look at total income earned by all women versus total income earned by all men, it’s easy to “prove” that there is a wage gap for women. When you control for individual choice, that gap goes away. When you look at “total tax revenues by state versus total Federal spending by state” it’s that same gross level of analysis that doesn’t actually inform anyone on the impacts of tax policy. The Federal government will often choose to spend money where they get the most “bang for the buck” the same as retired Federal employees choosing to move to areas with lower costs of living.

So anyone, Left or Right, who claims that state taxes have anything to do with prosperity or “subsidizing” other States, is full of horseshit if they can’t show how they did their math to end up at that conclusion, and as I’ve shown here, it’s not that hard to manipulate the data set to show whatever conclusion you want.

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