By now you’ve heard the “argument” (of that, more in a moment): Blue states pay more federal taxes than red states, while getting less spending back from the federal government. A letter in our Reader Mail Monday from Devin Foley summarizes the talking points cogently. Mr. Foley helpfully provides a source for his statistics, something many a higher-profile writer has failed to do.
Mr. Foley calls this tax and spend imbalance a “massive subsidization of Red States by Blue States.”
This proves, exactly, what?
It is not an argument, it is a tautology — nothing more than a restatement of several well-known facts. These facts are:
1. Blue state per capita incomes are higher (lots higher) than red state per capita incomes. Blue state costs of living are also higher (by quite a lot) than red state costs. This insures that higher-income people will tend to stay in those states, while lower- and middle-income people tend to leave. Indeed, blue states are losing population, as recorded in this August 2003 column by the Wall Street Journal‘s Daniel Henninger.
2. In blue states, you find the oldest cities in America, those cities formed of the nexus between railroads and harbors. The newest of those cities, Detroit, began about 80 years ago and almost immediately began to explode — another subject, of course; those cities are now relics.
3. Those old cities host most of the oldest cultural institutions — universities, publishing companies, museums and galleries, theaters, corporate headquarters, stock and bond markets, what is now called “the media.” If you want to get famous or make a lot of money, you leave the red states and go live in a blue city. Having the best rock and roll band in Nebraska doesn’t mean much. Having the best band in New York City is a big, big deal. No argument.
One might argue, in the true sense of “argue,” about only one thing: Does the inequity arise on the revenue side or on the spending side?
The three states that probably represent the highest per capita incomes, New York, Connecticut, and California, display the lowest ratios of federal spending to federal taxes, with ratios of .87, .69, and .79, respectively. (Connecticut, home of CEOs, has the lowest ratio in the entire table.) You find some of the highest ratios in some of the poorest states: Alabama, 1.64; Mississippi, 1.88; Arkansas, 1.54.
The highest ratios of all register in those states where the federal government owns lots of land: Alaska, 1.91; New Mexico, 2.34; North Dakota, 2.04.
Compare whole dollars, however, and the supposed “inequity” doesn’t look quite the same. California gets taxed for a total of about $255.8 billion. Alaska, New Mexico, and North Dakota, all together, take in $27.5 billion in federal spending, close to the amount ($25.3 billion) spent on Connecticut. Whom does California pay for? Connecticut or North Dakota?
Of course, everybody’s dollars, equally fungible, go everywhere. Throw out the statistical outliers, the only responsible way to make a real macro-analysis of this particular set of statistics, and the distribution of revenues versus taxes looks just about the way you’d expect from a federal republic. Note that there are plenty of blue states on the credit side of the federal ledger: Maryland, Pennsylvania, Rhode Island, Vermont, Maine, and Hawaii (big time).
Get back to the question, do the inequities arise more on the tax side or the spending side of the ledger? It’s clear that taxes make the biggest whole-dollar impact, not spending.
What would our blue state friends have us do as a nation to even out this “subsidization”? Get rid of the “progressive” income tax and implement a flat tax?
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