Quick Note: 77 Cents on the Dollar

The headline numbers for how much federal spending each state gets per federal tax dollar it sends to Washington come from the Tax Foundation and are almost a decade out of date. However, using IRS numbers for tax receipts per state, and QuickFacts’ numbers for federal spending per state and county, we can construct the numbers by state as of 2009. The picture is similar to the old numbers – the North subsidizes the South, as one would expect as the North is richer and also has a higher cost of living.

What I didn’t expect is that Rhode Island would get only 77 cents in federal spending per dollar of taxation. More precisely, in 2009 it paid $10.9 billion in taxes (more than richer states of comparable size, such as New Hampshire) and got $11.4 billion in spending; but the country as a whole ran a large deficit, and so if we divide 11.4/10.9 by the ratio of federal spending that actually came from taxes, we get 0.77. This was going on while the state ranked near the top in unemployment, and for a while, early in the recession, led the nation. The other high-unemployment states got much more than 77 cents on the dollar: California got 92 (up from $0.79 in 2004), Nevada $1.06 (up from $0.73), and Michigan $1.20 (up from $0.85); Florida, which was also hit hard, got $1.21, up from $1.02.

I have no explanation for this. Connecticut and Massachusetts, both richer than Rhode Island, do not get this little. I thought it might be because Rhode Island is a large daytime job gainer – it is one of the top states in percentage of workers who commute in from other states because of all the Providence suburbs in Massachusetts – but North Dakota is another such state because of Fargo’s Minnesota suburbs, and it got $1.60 in spending per dollar of revenue.

Update: Quickfacts decided to stop putting out the federal spending statistics. Here are numbers from 2010, which seem to be in a permalinked format. In 2010, Rhode Island got $11.8 billion in spending and paid $10.5 billion in taxes, which works out to 81 cents on the dollar, again after adjusting for the federal deficit. North Dakota got $1.47. See spreadsheet here with numbers for each state.

7 comments

  1. Tom West

    if you live in one state and work in another, which state gets to tax your income?

    • Alon Levy

      Not sure about the general case, but if you live in Massachusetts and work in Rhode Island, you pay state taxes in Rhode Island, and then pay Massachusetts the difference between the Massachusetts state tax and the Rhode Island state tax.

      I’m pretty sure that for federal taxes you’d count as a resident of Massachusetts, though. The IRS at least tracks where people live more than where employers are located.

  2. Zmapper

    According to the data presented, Colorado has switched from its historic role as a big donor state to a receiving state last year. I wonder what the biggest cause is of so many states switching roles?

    • Alon Levy

      Colorado is still a donor – in 2009 it paid $38.5 billion in taxes and got $46 billion in spending, but after adjusting for the deficit it only got 88 cents on the dollar. It’s a smaller donor than before, though, which I can’t explain, as its housing bust was extraordinarily small and its unemployment rate is only about average. It’s not the same as the shift in California or the outright switch in Michigan, Wisconsin, and others, which could be attributed to their being uniquely pummeled. Rhode Island’s role switch could be because it’s had strong growth over the decade, but even then, its per capita income is barely above the national average, and it got pummeled in the recession too, what with its high unemployment rate.

  3. jim

    Probably a military spending effect. Are there any bases in RI? I can’t think of any. Any big Defense contractors? Brown presumably gets some R&D bucks but that’s small potatoes.

    • Peter Brassard

      Brown and URI are the primary universities that get R&D funding, though there are several other schools that share in those funds. There’s a navy base in Newport that’s limited in size, where the Naval War College and the Naval Undersea Warfare Center (NUWC) are located. In the last few years the base has grown because of consolidation of other bases and programs relocating to Newport. There’s a fairly robust defense industry in Rhode Island. The two largest contractors are General Dynamics and Ratheon, which are headquartered in Virginia and Massachusetts respectively. The industry employs more than 16,000 people and generates $1.75 billion annually revenue.

    • Paul Druce

      Most of the spending stuff is Social Security and Medicare related rather than defense. CA, for instance, has several huge and rather expensive military facilities (San Diego, Pendleton, 29 Palms, Fort Irwin, Edwards, Vanguard, etc.) and yet is a donor state nonetheless.

      There’s also going to be a bit of feedback from property and other cost of living issues: If there is a high cost of living, there will necessarily be higher wages to accommodate it and so, all other issues being equal, you’ll see higher taxes paid and lower SS and Medicare payments as fixed and low income tend to move out owing to unaffordability.

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