How Some U.S. States Subsidize Other States

With the political battle over government spending raging across the globe the story of how some U.S. states are subsidizing others is getting more attention.

Here is a good post on this topic from the NY Times Economix blog with several useful links, as well as the below chart showing how much extra federal spending each state receives beyond each federal tax dollar paid into the federal government by that same state's taxpayers.

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And here is a map plotting the above data.

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From the chart and map you can see that in 2005 the state of New Mexico received back over twice the amount of money it paid into the federal government. 

In contrast, the state of New Jersey received $0.61 back on every dollar it paid into the federal government. 

In short, the New Jerseyans are subsidizing the New Mexicans via tax transfers conducted at the federal level.

Another observation is that just 17 states received back less than what they paid in while 32 received more back (Rhode Island received back exactly what it paid in). In other words, a minority of states are subsidizing the majority.

More from the NY Times:

Readers contemplating the table will discover in it a certain paradox — that those residents who most often denounce big government and call for sharp cuts in government spending often benefit themselves from such spending or live in regions that receive significant government support. This was also noted by the Tax Foundation. In presenting the data in the form of a geographic map, the foundation wryly observes: 

As you can see from the map, states that get the “worst deal” — that is, have the lowest ratio of federal spending to taxes paid — are generally high-income states either on the coasts or with robust urban areas (such as Illinois and Minnesota). Perhaps not coincidentally, these “donor” states also tend to vote for Democrat candidates in national elections. Similarly, many states that get the “best deal” are lower-income states in the Midwest and South with expansive rural areas that tend to vote Republican.

In other words, there is correlation between the above map and the below map which shows general U.S. Presidential voting patterns for Republicans (dark red solidly Republican, light red leans Republican) and Democrats (dark blue solidly Democrat, light blue leans Democrat), and white states a toss up.

Bottom line: the subject of some states, which primarily vote Democrat in the Presidential election, subsidizing Republican voting states is a topic that could generate significant political friction in the years ahead.

Video: Alex Salmond's LSE Talk on Scottish Independence

Below is the video, and the podcast can be heard here. Salmond makes a pretty persuasive case and I wouldn't be surprised if, given enough time to make it, we see an independent Scotland someday.

Speaker(s): Alex Salmond MSP
Chair: Professor Paul Kelly

Recorded on 15 February 2012 in Sheikh Zayed Theatre, New Academic Building.

Alex Salmond is the first minister of Scotland. He was born in Linlithgow in 1954. He attended Linlithgow Academy before studying at St Andrews University, where he graduated with a joint honours MA in Economics and History. He became the first ever SNP First Minister of Scotland in May 2007 and won the Aberdeenshire East constituency at the May 2011 election, when the SNP won a majority of seats of in the Scottish Parliament. MSPs re-elected him unopposed for a second term as First Minister on May 18 2011.