Federal Taxes Hit Hard Where You Live

Physician's Money Digest, November30 2003, Volume 10, Issue 22

I'm not very fond of New Jersey's USSenate delegation. To me, it's comprisedof 2 hopelessly out-of-touchmillionaires. But my disgust withthem isn't based on personality or evenpolitical philosophy. It's about simplemath and doing your job.

You see, when it comes to benefittingfrom federal tax payments and federalspending, New Jersey always gets clobbered.Every year, we are the perennialcellar-dwellers when it comes to gettingback what we put into the US Treasury.Last year, New Jersey was dead last outof 50 states, getting just 62 cents forevery $1 it sent to Washington. Indeed,New Jersey has been last in the nationgoing back 10 years.

Keep It Coming

Now, I certainly realize that the fedsneed money—in the past 2 years federalgovernment discretionary spending wasup by about 27%. Try to figure that out.We're beefing up national security andfighting a world war on terror, while militaryspending has climbed by only 17%from 2002 to 2003.

My peeve with my home-state senatorsis based on pure logic. We deserve atleast what other states receive. Our electedrepresentatives in Washington, DC,should vote for their state's interest onvital matters—like income taxes. Mysenators never have voted, and probablynever will vote, for significant federalincome tax reduction. I don't know whythey won't support a federal income taxcut for a very deserving state such asNew Jersey. What better way to keep themoney right here at home?

New Jersey isn't the only 1 beingabused on funding for a $1.8-trillionannual federal budget, though. TheNational Tax Foundation (NTF) recentlytook a look at the issue with a specialreport, Federal Tax Burdens and Expendituresby State (www.taxfoundation.org/taxingspending.html).

After New Jersey, the states with thebiggest deficits, give and take, are the following:Connecticut (65 cents in returnfor every $1 in federal taxes), New Hampshire(66 cents), Nevada (74 cents), Massachusetts(75 cents), California (76 cents),Illinois (77 cents), Minnesota (77 cents),Colorado (78 cents), and Delaware (85cents). Those states that benefit the mostare New Mexico ($2.37 for every $1 infederal taxes), Alaska ($1.91), Mississippi($1.89), West Virginia ($1.82), Montana($1.67), Alabama ($1.64), North Dakota($1.61), South Dakota ($1.61), Hawaii($1.57), and Arkansas ($1.55).

Only 1 state, Indiana, was dollar-for-dollareven, followed by Florida andGeorgia (at $1.01 for every $1). Althoughit's not comparable to a state, Washington,DC, is by far the biggest beneficiary of federal spending. It receives$6.44 for every $1 it pays in federal taxes.As for total federal taxes paid, the topsare California ($255.8 billion) and NewYork ($144.8 billion), and those at thebottom are North Dakota ($3.1 billion)and Wyoming ($3.4 billion).

Know the Why's

The reasons for the disparities in thegive and take are varied, according to theNTF. "Federal spending on defense andother procurement dollars are often funneledto the states of powerful congressmen,and state governments can grabmore federal grant money by skillfully—some would say slavishly—manipulatingtheir spending to comply with federal regulations,"explains J. Scott Moody, asenior economist at the NTF. "However,demography is at least as influential aspolitics. States with more residents onSocial Security, Medicare, and other largefederal entitlements are bound to rankfairly high. Similarly, the high spendinglevels in Virginia, Maryland, and theDistrict of Columbia are explained by thepredominance of federal employees."

On the tax side of the equation,Moody explains, "States with higherincomes per capita—like Connecticut—pay much higher federal taxes per capitabecause of the income tax's progressivestructure. Still, the citizens in thesehigh-income, high-tax states don't alwayslive better or save more than peoplein low-income, low-tax states,because the higher cost of living is usuallythat much higher."

I trust that America's doctors, whofall into an income bracket that paysnearly 55% of all the federal incometaxes, understand my argument.