Which States Get the Most Money from the Federal Government?

Due to states' differing taxes and needs, some give the U.S. federal government far more money than they receive, and some receive far more than they pay. Interestingly, this tends to fall along party lines. Learn more in this episode of BrainStuff.

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Episode Transcript

Speaker 1 (00:02):
Welcome to brain stuff from how Stuff Works. Hey there,
brain stuff Lauren vogelbam here. Recently, California state legislators made
headlines threatening to cut off tax payments to the federal
government in response to President Donald Trump's executive order punishing
so called sanctuary cities whose police forces do not hand
over illegal immigrants to the federal authorities. California is one

(00:25):
of about fourteen donor states where residents pay far more
in federal taxes than they get back in federal aid
and contracts. While Californians are unlikely to commit mass tax evasion,
it does bring up the question of why some states
are more dependent on federal money than others. Joseph Henchman
is vice president of Legal and State Projects at the
Tax Foundation, a nonpartisan organization dedicated to tax policy. He

(00:49):
explained that there are several factors that affect how much
bang each state gets for its tax buck. He said,
on the revenue side, the biggest driver is the federal
income tax, which is a very progressive since them. This
refers to the fact that earners are taxed at higher
rates as their income increases. He continued, so in places
with higher incomes California and New York. They're putting a

(01:09):
lot more into the system. On the spending side, there
are a lot of federal programs to help low income people,
so if your state has a lot of low income people,
you tend to be a net recipient. Back in two
thousand five, the Tax Foundation published the very first state
by state comparison showing how many federal dollars each state
receives for every dollar paid in federal taxes. At the time,

(01:32):
New Jersey was the most generous donor state, paying nine thousand,
nine hundred and two dollars in federal taxes per resident
and only getting back six thousand, seven hundred and forty
dollars in federal spending. That's sixty one cents for every
tax dollar. Nevada was the second big donor, mostly because
of taxes on casinos, followed by Connecticut, where it's high

(01:52):
earning residents got back just sixty nine cents on their
federal tax dollar. The biggest recipient state in two thousand
five was New mex Go, where taxpayers got a too
for one special, receiving two dollars and three cents in
federal spending for every dollar they paid in federal taxes.
In addition to having one of the highest poverty levels
of any state, New Mexico is also home to huge

(02:13):
government run nuclear facilities, large military bases, and lots of
federally owned land. The other top recipient states were Mississippi,
with its large low income population, and Alaska, whose small
population numbers and long history of Washington d C earmarks
resulted in nearly fourteen thousand dollars in federal spending per
resident compared with five thousand, four hundred dollars in taxes paid.

(02:36):
Wallet Hub ran the numbers again in twenty six and
found most states in roughly the same spots, with large
swaths of the Deep South perceiving far more federal dollars
per capita than New England and California. Overall, Kentucky, Mississippi,
and New Mexico were the most dependent on federal funds,
and Delaware, Minnesota, and New Jersey were the least. Much
has been made of the fact that red states states

(02:58):
the typically vote Republican, received far more federal dollars per
capita than blue states states that typically vote Democrat, even
though Republicans strongly advocate for a smaller federal government. And
cuts to entitlement programs in while it hubs analysis, wherein
lower ranks I mean the state is more dependent on
the federal government. States that went read in twelve had
an average dependency rank of seventeen point thirteen, while blue

(03:21):
states averaged thirty three point twenty three. When the Tax
Foundation looked specifically at how much a state's total revenue
came from federal grants and aid, the numbers were pretty stark.
Both Mississippi and Louisiana relied on federal aid for more
than forty percent of their general revenue. Tennessee, Montana in
Kentucky came in just under all are read states. Sources

(03:43):
of grants in aid include medicaid, transportation money, law enforcement grants,
housing grants, anything. John Henchman said, where the Fed Government
is cutting a check to the state government to then
transfer it to recipients, there isn't a formula on how
much federal money each state gets. Henchman points out that
more than of the federal budget comprises Social Security, Medicare, Medicaid,

(04:06):
social programs like food stamps, and defense spending. Social Security
is technically a trust fund and not aid. The rest
of the money allocated to a state depends on the
income of the people living there, whether military bases or
defense contractors are located there, plus how good its politicians
are at bringing home The proverbial pork of federal revenue

(04:26):
comes from income tax and payroll taxes. Henchman is a
Californian himself and understands why his neighbors grumble about subsidizing
federal aid programs and other states. For one thing, large
amounts of federal spending allow red state governments to keep
their taxes artificially low. The highest individual state income tax
rate in Mississippi and Alabama in sixteen was five percent,

(04:48):
while top earners in California and New York paid thirteen
point three percent and eight point eight two percent, respectively.
Part of the problem is a far off federal government
trying to legislate one size fits all solutions in states
and localities with different needs, and some argue this redistribution
helps to level the playing field for all citizens, regardless

(05:10):
of which state they live in. Today's episode was written
by Dave Ruse and produced by Tristan McNiel. For more
on this and lots of other political unpacking, visit our
home planet hostaff works dot com,