Friday, April 29, 2016


In the past I've explained (herehere and here) how the United States redistributes wealth on a regular basis. Specifically, I provided data showing that for every $1.00 California - or Californians - pay into the federal tax system that the state gets far less than $1.00 back from the feds. Other "Blue States" - like Illinois and New York - also get less than $1.00 for every dollar they pay in to the system.

Poorer states, like Alabama, Mississippi, and New Mexico, however, will get anywhere from $1.25 and well over $2.00 back for every dollar they pay in taxes.

This wealth redistribution game is a pretty sweet deal. That is, if you're one of the poorer states - who, strangely enough, are politically conservative and like to complain about needing to get the federal government out of our lives.

Anyways, the 2016 Tax Foundation report is out and it has some interesting numbers when it comes to understanding which states depend most on "big gubmint" for their - let's be frank - survival. When it comes to Federal Aid as a Percentage of State General Revenue we find:

* For every $100 Alabama spends, $36.15 of that comes from the federal government.

* For every $100 Montana spends, $37.42 of that comes from the federal government.

* For every $100 Louisiana spends, $41.94 of that comes from the federal government.

* For every $100 Mississippi spends, $42.89 of that comes from the federal government. 

Red-State, Blue-State summary election results for 2000, 2004, 2008 and 2012. 

Things are much different when it comes to the dreaded "liberal" Blue States, like California and New York.

For every $100 California spends, $24.96 of that comes from the federal government.

For every $100 New York spends, $28.01 of that comes from the federal government.

For every $100 Washington spends, $27.30 of that comes from the federal government. 

There's more, but you get the point.

The real takers in our national redistribution of wealth scheme are not the the liberal Blue States. It's the conservative Red States who talk a good game about rugged individualism, but can't seem to stand on their own two feet without being subsidized with Blue State federal tax dollars.

So, yeah, some of the biggest federal tax takers are the nation's conservative southern states. In one estimate, South Carolina got almost $8.00 from the federal government for every dollar they paid in federal taxes. This suggests that, contrary to the political rhetoric, conservative southern states really have no problem with "big gubmint" - as long as it's taken from the liberal Blue States and redistributed into their state coffers.

What does this all mean for you and me?

For starters, we need to acknowledge that we live in a country that redistributes wealth, big time.

We also need to acknowledge that the states who depend the most on our wealth redistribution policies are mostly conservative and southern states.

Then we have this little nugget to think about: If the state of California had simply received $1.00 for every dollar it paid into the federal tax system between 1990 and 2009 it would have an additional $336.2 billion sitting around. This is more than enough to pay off the state's $250 billion retirement and health care obligations that's now being tossed around politically as evidence of California's immediate debt problem.*

Even after paying California's long-term obligations off - which no sensible economist or financial adviser would advocate - we could use what's left from our $336.2 billion (about $83 billion) and fund the entire California State University budget ($5.1 billion, 2016) for the next 15 years.

Or we could simply eliminate student tuition in the CSU system for the next 40 years.

What all of this really means is that the Red State takers need to rethink what they're talking about when they complain about the role the federal government plays in their lives. They are wards of the state, and need to be a little bit more grateful (and realistic) when it comes to acknowledging how our federal system of government actually works.

- Mark

* These are incremental long-term obligations, rather than what critics like to suggest are immediate debt obligations.

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