Anyone have facts on whether red states receive more Federal dollars that they contribute in taxes? There is a meme going around the blogosphere that the red states which so piously crow about their rugged individualism and morality are simultaneously slurping at the public teat in DC in excess of what they actually contribute in i.e. they are net importers of tax dollars.
I have no idea if it's true or not.
But if it is true, it would suggest a psychological dynamic -- sheer embarrassment -- for the virulent anti-Federalism we hear from so many rural areas such as the Dakotas etc etc. They love the loot they get from the productive area (e.g. California, New York, Massachusetts) via Federal taxes but they hate having to admit that they need the help because of their own lack of productivity.
It's just a question and has an objective answer.
Thus I wonder if one of the things we'll see from the Republican majority in Congress is an on-going attempt to bankrupt the blue states through clever manipulation of Federal spending. The small states have the votes in the Senate. And as we learned from Watergate, "Follow the money." This election may not have been so much about "morality" as simply about less productive people getting hold of the Federal budget to benefit their red states at the expense of the blue ones.
But as I say, I don't know; let the facts speak.
Look at Canada and its system of 'transfer payments' as a worthwhile example. What is a major, visible, widely known, and frequently debated part of the Canadian Federation seems to be a hidden secret in the American Federation.
Rich provinces help poor provinces through transfer payments because it is believed that all citizens of a country deserve to live at the same standard of living, no matter how rich their province is lucky enough to be. Some areas have a structural advantage over others, and this should not cause problems for the residents of the poor area.
The strange thing which ends up happening is that, at present, there are TWO 'have' provinces which are subsidising EIGHT 'have-not' provinces (plus three territories which, although low in population, are high in needs).
Now, the split is not as simple as it is in the states (you and your silly two-party system), but you see some similar reactions, with one 'have' province being happy with the situation and liberal, one 'have' province being oil-rich, unhappy and conservative (just like Texas), and a bunch of 'have-not' provinces sometimes stating displeasure at the system, confusing the hell out of the 'have' provinces.
This is just an overly simplistic overview, and I would go into better detail, but I'm quite tired. Look in to it, eh?
Posted by: Hans from Toronto | Nov 05, 2004 at 11:48 PM
Does this help?
http://www.taxfoundation.org/ff/taxingspendingupdate.html
It looks like it's from a conservative foundation, but the data is straight from the census. And it handily confirms the hypothesis. North Dakota gets $2 from the federal government for every dollar it sends in taxes, while New Jersey gets 62 cents. It's not an absolute blue-state/red-state divide (DC is the #1 feeder at the federal trough, and Texas is a net giver rather than taker), but it's pretty darn close.
Posted by: Matthew Amster-Burton | Nov 06, 2004 at 07:22 AM
The comments section on Yglesias' blog is huge so I thought I'd drop this here as well. It might get more readers. Essentially, the red state subsidies are not party driven for the most part and are structural in nature. The one exception is ag subsidies where the Republican party has long worked to get rid of them in a way that won't kill off the party electorally. The Bush strategy for doing it is very good, so good that most people haven't even noticed it.
Posted by: TM Lutas | Nov 06, 2004 at 09:05 AM
This book addresses that issue directly:
http://www.retrovsmetro.org/
I haven't read it, but it looks interesting.
Posted by: Steve | Nov 06, 2004 at 10:15 AM
This is certainly the case with the Federal gas tax--which goes to fund highway and transit projects. We will be examining this in depth at the http://newurbanist.blogspot.com as the Congress works in the next few months to pass the final transportation re-authorization bill.
It has basically been held up for 13 months as the Senate, House, and the President had different limits for spending. In the election year, Republicans wanted to sacrifice reauthorization for party unity.
I would expect that the funding equation will not be as equitable as it should be given the power of many small-state members of Congress.
Posted by: H. Bartling | Nov 06, 2004 at 05:45 PM
Here in New York this is something that Senator Moynihan banged on about constantly. This is helpful, from the Kennedy School: http://www.ksg.harvard.edu/taubmancenter/publications/fisc/fy1995/FY1995Summary.pdf
Note that it's a .pdf.
Jane Jacobs also takes up the question in her new book, "Dark Age Ahead."
It is also a standard argument of big-city neo-cons (e.g. Manhattan Institute) that places like New York therefore _always_ benefit from reductions in Federal taxation, since they get to keep more of their money. The argument is made (I find it persuasive) that New York was saved from a severe recession after 9/11 by the Bush tax cuts.
Posted by: Francis Morrone | Nov 06, 2004 at 08:13 PM
I just had an interesting talk w/someone who works in the ?Foreign Commerce Service?, helping US businesses export; she remarked that the '90s were economically awful for most of the central states because the US market they lost to freer trade was even bigger than the subsidies. (She doesn't think the subsidies are efficient at reducing rural economic loss, either, but that's a different argument.) *Extra* annoying that the coasts - with the big container ports - were booming at the same time.
There are some other systematic differences... the South has worse labor conditions, leading to more poverty, some of which is ameliorated with Federal money. Worse economic opportunity can also raise military enlistment, although I agree a whole lot of the difference is cultural.
I'm not so convinced that the greater expense for rural highways is 'just one of those things'. If we just paid for people to get around where they were, we'd put proportionate amounts into urban and rural transport and we'd have decent *transit* in the cities.
Posted by: clew | Nov 06, 2004 at 11:06 PM
It's probably worth noting that even a state that takes in more federal spending than it pays out in federal taxes might not, on net, benefit from the transaction. Why not? First off, there's the deadweight cost of taxation - the fact that a tax is being charged at all distorts the market and prevents some value-positive trades from taking place. Second, there are regulatory costs - the feds tell states what to do with some of their own money, not just with the money the feds spend. Lastly, the people getting the federal spending aren't the people paying the taxes, and if the taxes weren't there, some fraction of the money would likely go to better direct use than, say, keeping food expensive through price supports and building roads named after Senator Byrd in places where nobody needs them.
So it's quite possible that rural states could both (a) be net tax recipients and (b) be in favor of cutting government spending and taxing.
In fact, from my (libertarian) perspective it makes perfect sense - the states that get the most attention from the federal government are in the best position to see how wasteful and counterproductive that attention is!
Posted by: Glen Raphael | Nov 07, 2004 at 02:27 AM
Actually highway funding isn't a good example of blue to red redistribution.
There's a map here:
http://www.chiptaylor.org/misc/2004/07/more_statetostate_redistribution.html
Posted by: Chip | Nov 07, 2004 at 03:34 AM
Thanks for the map, Chip... do you know why the extremes are distributed as they are? I can believe that Alaska and the Dakotas have more expensive roads per linear foot than anywhere with less extreme climates, but why aren't the northern Rockies as expensive?
Glen, I would like your argument, but alas - the agricultural subsidies are wasteful, controlling, and expensive, but fiercely defended by almost all the recipients.
Posted by: clew | Nov 07, 2004 at 07:25 AM
Well, actually, after the 1994 midterm elections when the Republicans took over the House, Congress, led by rural Republicans such as Washington State's George Nethercutt, eliminated traditional subsidies to grain farmers entirely, with the support of said rural grain farmers. I was one of those grain farmers at the time, and as far as I could tell, my fellow farmers agreed with me that it was simply wrong to keep taking the money as a class. (Of course, no farmer will unilaterally refuse subsidies, not when he is in a permanent competition with his neighbors for land.)
This end of subsidies didn't extend to many other producers such as sugar farmers and left alone the Conservation Reserve Program, a grasslands set-aside favored by conservationists and hunters for hugely increasing wildlife habitat. Still, it was an inspiring display of principled refusal of government money.
A few years later in the late Nineties government spending baccanelia, when grain prices slumped, Congress (apparently unsatisfied with their reduced level of control over grain farming) waved subsidy money under farmers noses. The temptation was too much, and we are now back where we were before.
Posted by: Ethan Herdrick | Nov 07, 2004 at 11:42 AM
Okay. By rural grain farmers, not defended, but accepted... which might be evidence for our host's diagnosis of 'sheer embarassment'.
I surely do something as convenient and against my principles, for the same reason, that it's so hard to be the only person playing totally fair. I'm not especially pointing fingers for taking the money, although I will remark that the late-Nineties switch sounded different in the news; more like "we don't need grain subsidies all the time; just when it isn't making a profit".
The Economist's inside-back-cover League Table recently had a ranking of economic efficiency; I could also call it a rankling, since many of the nations in the Top Ten are Nordic countries with tax rates that would startle a New Yorker. Even the Economist grudgingly admitted that these vast government monies were, on the evidence, being extremely well used.
Posted by: clew | Nov 07, 2004 at 08:28 PM
Clew:
I think some of the extremes have a lot to do with how few people some of those states have. Their ratio is high not because they get so much, but because they pay so little.
Posted by: Chip | Nov 09, 2004 at 01:56 AM
There's an offsetting paradox as well: One party cares a whole lot more about inequality in income distribution than does the other. But the areas dominated by the uncaring party do a whole lot better at equalizing income than those run by the caring party. Compare Syracuse with Manhattan, Charlotte with Miami, Indianapolis and Cincinnati with San Francisco and Oakland. (David Brooks has made a lucrative second career pointing out the more superficial aspects of this phenomenon.)
A generation ago you might have argued that partisan dominance was the child of economic profile. But this has been going on for so long now that it's certainly the other way around. Professed egalitarians are doing a damned good job of creating inequality. (A cynic might add that this works to their political interest.)
Posted by: Reg Cæsar | Nov 10, 2004 at 12:38 AM
Huh, Reg?
Indeed "...compare Syracuse with Manhattan" and you find what? I assume more rich people in Manhattan? So what does that demonstrate? That Manhattan is a source of economic enterprise and the people who live there are productive. That's one thing it shows. And so of course the gap between rich and poor is higher than in Syracuse which is suffering...
Also, you write that " areas dominated by the uncaring party do a whole lot better at equalizing income." The idea that the region or the metropolitan area is an operative entity in effecting the number of rich vs poor. strikes me as off the mark. I don't think it works that way.
Posted by: David Sucher | Nov 10, 2004 at 07:01 AM
Manhattan doesn't merely have "more rich", but more super-rich, and super-poor. Same with coastal California and Illinois. Seems like the "Brazilianization" of America occurs right where the leaders are most vocally opposed to it. I'm just calling those leaders on it, that's all.
Having lived both upstate and down-, I can say that Syracusans are at least as potentially productive as anyone downstate. But the state's economic policies (maybe they should be called anti-economic policies) have less of an effect on the slippery, ephemeral markets of finance, media, and the like in the City than they do on the traditional middle- and working-class industries upstate. (Which used to play the role of "Silicon Valley" in the early and middle 20th century, by the way. IBM, Xerox, Kodak, Bausch & Lomb...)
Seattle has been much friendlier to its middle class than other coastal cities. But then, how many of those other cities are in a state with no income tax? ;-)
Posted by: Reg Cæsar | Nov 11, 2004 at 01:04 AM
"Seems like the "Brazilianization" of America occurs right where the leaders are most vocally opposed to it."
Sorry. That sounds like another strawman and this blog, to the extent possible, has exclusionary zoning when it comes to such creatures.
Posted by: David Sucher | Nov 11, 2004 at 08:44 AM