WEBVTT - Which States Get the Most Money from the Federal Government?

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<v Speaker 1>Welcome to brain stuff from how Stuff Works. Hey there,

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<v Speaker 1>brain stuff Lauren vogelbam here. Recently, California state legislators made

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<v Speaker 1>headlines threatening to cut off tax payments to the federal

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<v Speaker 1>government in response to President Donald Trump's executive order punishing

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<v Speaker 1>so called sanctuary cities whose police forces do not hand

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<v Speaker 1>over illegal immigrants to the federal authorities. California is one

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<v Speaker 1>of about fourteen donor states where residents pay far more

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<v Speaker 1>in federal taxes than they get back in federal aid

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<v Speaker 1>and contracts. While Californians are unlikely to commit mass tax evasion,

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<v Speaker 1>it does bring up the question of why some states

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<v Speaker 1>are more dependent on federal money than others. Joseph Henchman

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<v Speaker 1>is vice president of Legal and State Projects at the

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<v Speaker 1>Tax Foundation, a nonpartisan organization dedicated to tax policy. He

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<v Speaker 1>explained that there are several factors that affect how much

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<v Speaker 1>bang each state gets for its tax buck. He said,

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<v Speaker 1>on the revenue side, the biggest driver is the federal

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<v Speaker 1>income tax, which is a very progressive since them. This

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<v Speaker 1>refers to the fact that earners are taxed at higher

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<v Speaker 1>rates as their income increases. He continued, so in places

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<v Speaker 1>with higher incomes California and New York. They're putting a

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<v Speaker 1>lot more into the system. On the spending side, there

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<v Speaker 1>are a lot of federal programs to help low income people,

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<v Speaker 1>so if your state has a lot of low income people,

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<v Speaker 1>you tend to be a net recipient. Back in two

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<v Speaker 1>thousand five, the Tax Foundation published the very first state

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<v Speaker 1>by state comparison showing how many federal dollars each state

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<v Speaker 1>receives for every dollar paid in federal taxes. At the time,

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<v Speaker 1>New Jersey was the most generous donor state, paying nine thousand,

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<v Speaker 1>nine hundred and two dollars in federal taxes per resident

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<v Speaker 1>and only getting back six thousand, seven hundred and forty

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<v Speaker 1>dollars in federal spending. That's sixty one cents for every

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<v Speaker 1>tax dollar. Nevada was the second big donor, mostly because

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<v Speaker 1>of taxes on casinos, followed by Connecticut, where it's high

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<v Speaker 1>earning residents got back just sixty nine cents on their

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<v Speaker 1>federal tax dollar. The biggest recipient state in two thousand

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<v Speaker 1>five was New mex Go, where taxpayers got a too

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<v Speaker 1>for one special, receiving two dollars and three cents in

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<v Speaker 1>federal spending for every dollar they paid in federal taxes.

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<v Speaker 1>In addition to having one of the highest poverty levels

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<v Speaker 1>of any state, New Mexico is also home to huge

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<v Speaker 1>government run nuclear facilities, large military bases, and lots of

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<v Speaker 1>federally owned land. The other top recipient states were Mississippi,

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<v Speaker 1>with its large low income population, and Alaska, whose small

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<v Speaker 1>population numbers and long history of Washington d C earmarks

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<v Speaker 1>resulted in nearly fourteen thousand dollars in federal spending per

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<v Speaker 1>resident compared with five thousand, four hundred dollars in taxes paid.

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<v Speaker 1>Wallet Hub ran the numbers again in twenty six and

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<v Speaker 1>found most states in roughly the same spots, with large

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<v Speaker 1>swaths of the Deep South perceiving far more federal dollars

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<v Speaker 1>per capita than New England and California. Overall, Kentucky, Mississippi,

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<v Speaker 1>and New Mexico were the most dependent on federal funds,

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<v Speaker 1>and Delaware, Minnesota, and New Jersey were the least. Much

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<v Speaker 1>has been made of the fact that red states states

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<v Speaker 1>the typically vote Republican, received far more federal dollars per

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<v Speaker 1>capita than blue states states that typically vote Democrat, even

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<v Speaker 1>though Republicans strongly advocate for a smaller federal government. And

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<v Speaker 1>cuts to entitlement programs in while it hubs analysis, wherein

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<v Speaker 1>lower ranks I mean the state is more dependent on

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<v Speaker 1>the federal government. States that went read in twelve had

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<v Speaker 1>an average dependency rank of seventeen point thirteen, while blue

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<v Speaker 1>states averaged thirty three point twenty three. When the Tax

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<v Speaker 1>Foundation looked specifically at how much a state's total revenue

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<v Speaker 1>came from federal grants and aid, the numbers were pretty stark.

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<v Speaker 1>Both Mississippi and Louisiana relied on federal aid for more

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<v Speaker 1>than forty percent of their general revenue. Tennessee, Montana in

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<v Speaker 1>Kentucky came in just under all are read states. Sources

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<v Speaker 1>of grants in aid include medicaid, transportation money, law enforcement grants,

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<v Speaker 1>housing grants, anything. John Henchman said, where the Fed Government

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<v Speaker 1>is cutting a check to the state government to then

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<v Speaker 1>transfer it to recipients, there isn't a formula on how

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<v Speaker 1>much federal money each state gets. Henchman points out that

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<v Speaker 1>more than of the federal budget comprises Social Security, Medicare, Medicaid,

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<v Speaker 1>social programs like food stamps, and defense spending. Social Security

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<v Speaker 1>is technically a trust fund and not aid. The rest

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<v Speaker 1>of the money allocated to a state depends on the

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<v Speaker 1>income of the people living there, whether military bases or

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<v Speaker 1>defense contractors are located there, plus how good its politicians

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<v Speaker 1>are at bringing home The proverbial pork of federal revenue

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<v Speaker 1>comes from income tax and payroll taxes. Henchman is a

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<v Speaker 1>Californian himself and understands why his neighbors grumble about subsidizing

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<v Speaker 1>federal aid programs and other states. For one thing, large

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<v Speaker 1>amounts of federal spending allow red state governments to keep

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<v Speaker 1>their taxes artificially low. The highest individual state income tax

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<v Speaker 1>rate in Mississippi and Alabama in sixteen was five percent,

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<v Speaker 1>while top earners in California and New York paid thirteen

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<v Speaker 1>point three percent and eight point eight two percent, respectively.

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<v Speaker 1>Part of the problem is a far off federal government

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<v Speaker 1>trying to legislate one size fits all solutions in states

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<v Speaker 1>and localities with different needs, and some argue this redistribution

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<v Speaker 1>helps to level the playing field for all citizens, regardless

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<v Speaker 1>of which state they live in. Today's episode was written

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<v Speaker 1>by Dave Ruse and produced by Tristan McNiel. For more

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<v Speaker 1>on this and lots of other political unpacking, visit our

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<v Speaker 1>home planet hostaff works dot com,