• Federal taxes versus federal spending

    Perhaps my favorite disconnect during the health care reform mess:

    I teach a class to first year medical students on health policy and economics. It’s often one of the most rewarding parts of my job. Every year, there are a few students who stick around after class and ask questions; many of them are truly insightful.

    Recently, a student challenged me by stating that taxes were a form of wealth redistribution; he thought that most states would rather do away with taxes entirely and stop giving money to others.

    I find this argument odd in the same way that I do the sign above. Yes, federal taxes obviously move money from some states to others. States don’t get exactly the money back that they pay. But it seems that (1) the more conservative states would like to do away with federal taxes and redistribution, and at the same time (2) they are often taking in the most government spending.

    But I wanted data. So I first went to the most recent Gallup poll on self-identified ideology by state. Using their data on “conservative advantage”, I ordered the states by the difference between the number of “conservatives” versus “liberals” in the state.  Next, I went to The Tax Foundation, which published a report in late 2007, on federal spending on each state versus the amount of federal taxes paid for each state.  I next drew a red line at $1. States above the line receive more money in federal spending than they pay in taxes. They are having wealth redistributed to them. States on or below the red line are not. At best, they are breaking even, and most are paying more in taxes than they get in spending. They are having wealth redistributed from them. I also put a green vertical line dividing the most conservative 25 states from the 25 most liberal ones:

    Now, I own that the data on taxes versus spending are old, but they are the most recent and the best I could do. Moreover, I have found nothing to make me believe there have been significant changes. I also own that this isn’t a perfect analysis, but until I hear otherwise, it seems to make sense.

    The results are, again, somewhat of a disconnect. Of the 25 more liberal states, 16 of them are paying more in taxes than they get back. Of the 25 more conservative states, only 2 can say that. 23 of the 25 more conservative states are having wealth redistributed to them.

    I know people have a knee jerk response to dislike taxes and redistribution. But it seems like those most opposed to the idea of both of these things seem to be getting the most out of them.

    UPDATE: Fixed an axis title.

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    • Thanks for pointing this out, Aaron.

      Around the 2008 presidential election timeframe, another group presented a table titled red-state socialism: http://democraticactionteam.org/redstatesocialism/index.html

      We can argue whether socialism is the accurate word to describe this scenario but I think their point as well as yours is well taken.

      This disconnect between data and perception is one of the key problems facing the US, in my opinion. When people who receive a lot of benefits don’t realize that, and in turn they perceive that their lazy bums (read: some version of racial/gender bias) get all the benefits, idiocy ensues.

    • The graph is labeled Federal Taxes per dollar of Federal Spending. This says to me that states with a ratio above one pay more taxes per dollar of spending they get back. This changes the conclusion made from your graph.

    • So does this mean that conservatives are sincere enough to advocate a policy that would cause them a loss of advantage?

    • @Donnie.

      No, it means I screwed up the title. Thanks for the pickup. I fixed it.

    • @Floccina

      Really? That’s what you’re going to go with?

      How about states with such amazing conviction and sincerity stop accepting (let alone asking for) all that spending?

    • I forgot to bookmark it, but Thoma (?) recently had a post noting that the average American receives a significant amount of benefits for the taxes they pay. Maybe it would help if we received a receipt like Klein, among others suggested.

      http://voices.washingtonpost.com/ezra-klein/2010/09/shouldnt_taxpayers_get_a_recei.html

      Steve

    • Interesting topic here. A quick point: if the data is from 2007, it doesn’t account for the “stimulus” spending or the changing priorities of the Obama administration. There has been some other empirical research showing that “stimulus” spending flowed overwhelmingly to liberal congressional districts. In order to get an understanding of the dynamic at work here, it would probably be helpful to look at spending and taxes over time, instead of the snapshot shown here.

    • pipster- The Tax Foundation has data on this back to 1981. The conclusion still holds. The trends are interesting.

      Steve

    • Nice link, thanks. I don’t have time to copy the data into Excel and plot a time series across multiple states, but the state-by-state looks are interesting. It appears that there may have been an uptick in spending in “liberal” states in 1993 – 2001, but it’s hard to tell. I think some of the affects that are seen are also related to the large deficits run up in recent years. With the feds spending more than they take in, every state has a tendency to creep above Aaron’s red line, right?

    • ” With the feds spending more than they take in, every state has a tendency to creep above Aaron’s red line, right?”

      Or have the states below it sink farther. The recent uptick due to TARP and ARRA will recede. The long term trend is to increase debt (as a percentage of GDP). That started in 1980 and has continued, except for a few years in the late 90s. It is that long term trend, mostly due to Medicare/Medicaid spending which drives things. That is what makes the few blogs that routinely cover medical economics so important.

      Steve

    • Interesting that you would make a graph on federal spending per state but not include what the money was actualy used for. Arizona and New Mexico which are near the top of the list should jump out as states who recieve federal money for border protection. Kentucky may be listed as “conservative” but heavily votes democratic (read liberal).

    • Very flawed on many fronts. Population is not accounted for. Defination of Fed spending is not accounted for. Definition of liberal vs conservative state is extremely subjective (many Liberals now call themselves “independent” or progressive-this should be determined by Congressional representation). Wealth of population has not been considered. ( Liberal states NY, NJ and California have some of the wealthiest populations and therefore pay a disproportionate amount of taxes).

      Just very flawed in all areas and not a good representation of the situation.

      As someone on this blog suggested (sarcastically), let’s punish those greedy Republicans by giving them what they want, less Federal spending.

    • I was just making this argument in a forum frequented by conservatives and popped out to find some data/graphic supporting and bingo. Their states avg 10-12%/yr profit off their taxes, almost all of which come from the liberal states they love to hate. Sigh, well, as long as they promise to stay in the attic, er, Kansas, I suppose our special needs states that are not capable of being self sustaining, deserve our support, not matter how witlessly ungrateful they are for it.

      They love to squawk about their taxes, but they keep sending the same Sendin’ Home the Pork politicians to DC year after year. ‘Cuz just because they hate paying them, doesn’t mean they bat an eye at taking back more than their share of them. I get back 77% in CA and they get back 112% (most recent year I could find data for, ’10) in KS and they hate MY politics? Unappreciative ‘tards.

      We’re about five minutes away from John Deere tractors that are autonomous robotic corporate farmers and every single person in KS is going to become antiquated surplus production equip to be liquidated. I hear they still do a lot of hand labor in China. ‘Bye while you’re handy.