Hitting You Where You Live

Physician's Money Digest, March15 2005, Volume 12, Issue 5

When it comes to benefitingfrom in-go federal tax paymentsand out-go federalspending, certain states always get clobbered.The perennial cellar-dwellerwhen it comes to getting back what'sput into the US Treasury is New Jersey—dead last out of 50 states, getting just$0.57 for every $1 it sends to Washington.Indeed, New Jersey has beenlast or next to last in the nation goingback 10 years.

Too often, residents fail to push theirhome state-elected representatives inWashington, DC, to vote for their state'sinterest on vital matters (eg, incometaxes). The National Tax Foundation (NTF)recently reviewed the issue in a 2004 specialreport, "Federal Tax Burdens andExpenditures by State" (www.taxfoundation.org/taxingspending.html).

After New Jersey, the states with thebiggest deficits (give and take) are NewHampshire ($0.64 in return for every $1in federal tax), Connecticut ($0.65),Minnesota and Nevada ($0.70), Illinois($0.73), Massachusetts ($0.78), California($0.78 cents), New York ($0.80), andColorado ($0.80).

Those states that benefit the mostfrom the Treasury are New Mexico($1.99 for every $1), Alaska ($1.89),Mississippi ($1.83), West Virginia ($1.82),North Dakota ($1.75), Alabama ($1.69),Montana ($1.60), Virginia ($1.58),Hawaii ($1.58), and Kentucky ($1.52).

Two states, Florida and Oregon, weredollar-for-dollar even. Although not comparableto a state, the District of Columbiais by far the biggest beneficiary of federalspending. It gets back $6.59 for every$1 it pays in federal taxes. As for total federaltaxes paid, the tops are California($234.5 billion) and New York ($144.7 billion);at the bottom are North Dakota ($3billion) and Wyoming ($3.3 billion).

The reasons for the disparities arevaried. "Federal spending on defenseand other procurement dollars are oftenfunneled to the states of powerful congressmen,and state governments cangrab more federal grant money by skillfully—and some would say slavishly—manipulating their spending to complywith federal regulations," explains J.Scott Moody, a senior economist at theNTF. "However, demography is at leastas influential as politics. States withmore residents on Social Security,Medicare, and other large federal entitlementsare bound to rank fairly high.Similarly, the high spending levels inVirginia, Maryland, and the District ofColumbia are explained by the predominanceof federal employees."

On the tax side of the equation,Moody says that "states with higherincomes per capita pay much higher federaltaxes per capita because of theincome tax's progressive structure. Still,the citizens in these high-income, high-taxstates do not always live better or savemore than people in low-income, low-taxstates because the higher cost of living isusually that much higher or more."