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Federal Taxes and Spending Ratios

 

[Click Here to View Federal Tax & Spend Data by State and County]


In the course of collecting taxes and spending money, the federal government inevitably creates “winners” and “losers” across the American landscape.  For instance, a rural area with a large military base will receive far more federal dollars in military salaries and wages and purchases from local suppliers than they will pay in federal taxes.  Such areas would be deemed a “net receiver” of money from Uncle Sam.



More subtly, an area may be subject to high levels of federal taxation that makes it difficult to receive more than they pay.  For instance, since the federal income tax code is significantly progressive (meaning tax rates rise with income), high cost-of-living areas such as New York City or Chicago pay a disproportionate amount in taxes.  Such areas would be deemed a “net payer” of money to Uncle Sam.


The results of the analysis are expressed as a ratio in terms of how much spending is received for every dollar that is sent to Washington, D.C.  Under current policies, more states benefit but more people lose from federal fiscal policy.  And, when the same analysis is performed more precisely at the county level, the disparity grows larger—the vast majority of counties benefit while a larger majority of people will lose.


Table 1 shows the federal tax burdens to spending ratios for every state for fiscal year 2013.  Overall, there are 29 states that receive more in federal spending than they pay in federal taxes representing 155 million people.  The top five winning states being: Kentucky ($1.75), Mississippi ($1.74), New Mexico ($1.69), Hawaii ($1.61), and West Virginia ($1.58).  Economically, these states are getting a financial boost from Uncle Sam.


Table 1 Federal Tax Burden and Spending Ratios by State Fiscal Year 2013.jpg


On the other hand, there are 21 states that pay more in federal taxes than they receive in federal spending representing 161 million people.  The top five losing states being: New Jersey ($0.65), Illinois ($0.74), Minnesota ($0.77), New York ($0.78), and New Hampshire ($0.79).  Economically, these states are experiencing a financial drain from Uncle Sam.


[Click Here to View Federal Tax & Spend Data by State and County]


Taking the level of analysis one step deeper, Table 2 shows the federal tax burdens to spending ratios for every county for fiscal year 2010.  Not surprisingly, the absolute dollar difference between the top receiver counties and the top payer counties is much greater for counties than for states.  The reason being that at smaller geographic scales, the impact of federal spending can make a big difference—such as a military base, large federal contractor or infrastructure projects.


Overall, 2,179 counties (out of 3,108 counties) in FY 2010 are net receiver counties representing 132 million people.  The top ten winning counties being: Christian County, Kentucky ($13.49), Valdez-Cordova Census Area, Alaska ($12.44), Chattahoochee County, Georgia ($12.34), Pulaski County, Illinois ($11.68), Bryan County, Georgia ($11.22), Geary County, Kansas ($11.02), Martin County, Indiana ($10.76), Sioux County, North Dakota ($7.12), Anderson County, Tennessee ($7.08, and Franklin County, Kentucky ($6.66).


On the other hand, 928 counties (out of 3,108 counties) in FY 2010 are net payer counties representing 177 million people.  The top ten losing counties being: Broomfield County, Colorado ($0.10), Douglas County, Colorado ($0.15), Lincoln County, South Dakota ($0.20), New Castle County, Delaware ($0.20), Fort Bend County, Texas ($0.20), Scott County, Minnesota ($0.22), Randall County, Texas ($0.23), Pitkin County, Colorado ($0.23). Forsyth County, Georgia ($0.25), and Washington County, Minnesota ($0.25).



Overall, Uncle Sam’s tax and spending policies can have enormous influence on the economic vibrancy of an area, especially when spending $3.4 trillion in FY 2010.  Under current policies, more states (29 win versus 21 lose) and people (155 million win versus 161 million lose) benefit from federal fiscal policy.  However, when the same analysis is performed more precisely at the county level, the disparity grows—while the vast majority of counties benefit (2,179 win versus 928 lose), the vast majority of people will lose (132 million win versus 177 million lose).


This dichotomy points to an interesting phenomenon in that the biggest payers into federal coffers are the high cost-of-living, big cities while the biggest receivers are more rural.  Take the ratios for some of the largest U.S. cities: New York City ($0.78), Chicago (Cook county, $0.82), Los Angeles (Los Angeles county, $0.85), San Francisco (San Francisco county, $0.81) and Seattle (King county, $0.65).



This analysis clearly shows that Uncle Sam’s tax and spending policies do have a disparate geographic impact creating “winners” and “losers” across America’s landscape.  Of course, this brings to light as to whether or not America’s federalist system was designed to redistribute income and wealth over state lines?  Nonetheless, philosophical debates aside, Uncle Sam’s actions do economically impact your state and your county in a significant way.


[Click Here to View Federal Tax & Spend Data by State and County]


Methodology


The data is based on the federal fiscal year which runs from September 1 to October 30.


The federal tax data comes from the Office of Management and Budget’s Analytical Perspectives: Historical Tables.  http://www.whitehouse.gov/omb/budget/Historicals


Supplemental data comes from the Congressional Budget Office (capital gains data) and Statistics of Income (alcohol taxes).


The federal spending data come from the U.S. Department of Commerce’s Census Bureau as published in the Consolidated Federal Funds Report (CFFR): http://www.census.gov/govs/cffr/


Unfortunately, the Consolidated Federal Funds Report was discontinued a few years ago and the last available data is for FY 2010. This is more than unfortunate, it is downright wrong and Congress should act to restore this important and necessary study.


In the meantime, The Pew Charitable Trusts recognizes the importance of having the CFFR data and has made the herculean effort to recreate it at the state level. Their analysis extends the state level data to FY 2013. We use their estimates to project the CFFR by taking the percentage yearly change in the Pew data and applying it to the CFFR data.


State-level Federal Tax Allocation:


Individual Income Tax: The individual income tax was broken down into two components—taxes paid on capital gains and all other income taxes.  Taxes paid on capital gains were distributed on a equal basis between dividends, interest, and rents (Bureau of Economic Analysis) and capital gains income (Internal Revenue Service).  All other income taxes distributed by income tax liabilities (Internal Revenue Service).


Corporate Income Tax: The corporate income tax was distributed equally to capital (dividends, interest and rent (Bureau of Economic Analysis)), labor (net earnings by place of residence (Bureau of Economic Analysis)) and consumption (gross domestic product (Bureau of Economic Analysis)).


Social Insurance Taxes and Contributions: Social Insurance is broken down into three components—employment taxes, unemployment insurance and other retirement contributions.  Employment taxes are allocated by personal contributions for social insurance (Bureau of Economic Analysis, adjusted by place of resident).  Unemployment insurance is allocated by state unemployment insurance compensation (Bureau of Economic Analysis).  Other retirement contributions are allocated by personal income (Bureau of Economic Analysis).


Excise Taxes: Excise taxes are broken down into seven components—beer, wine, distilled spirits, tobacco, highway, airport and other.  Beer, wine and distilled spirits taxes are allocated based equally upon shipments into the state (The Beer Institute) and population over the age of 18 (Census Bureau). The tobacco tax is allocated based on population over the age of 18 (Census Bureau).  The highway tax is allocated based on federal highway trust fund receipts (Federal Highway Administration).  Airport and other taxes are allocated based on disposable personal income (Bureau of Economic Analysis).


Estate and Gift Taxes: Estate and gift taxes were allocated based on estate and gift tax collections (Internal Revenue Service).


Customs Duties and Other taxes: Customs duties and other taxes were allocated based on disposable personal income (Bureau of Economic Analysis).


County-level Federal Tax Allocation:


Individual Income Tax: The individual income tax was allocated by adjusted gross income (Internal Revenue Service).


Corporate Income Tax: The corporate income tax was distributed equally to capital (dividends, interest and rent (Bureau of Economic Analysis)), labor (net earnings by place of residence (Bureau of Economic Analysis)) and consumption (personal income (Bureau of Economic Analysis)).


Social Insurance Taxes and Contributions: Social Insurance is broken down into three components—employment taxes, unemployment insurance and other retirement contributions.  Employment taxes are allocated by personal contributions for social insurance (Bureau of Economic Analysis, adjusted by place of residence).  Unemployment insurance is allocated by state unemployment insurance compensation (Bureau of Economic Analysis).  Other retirement contributions are allocated by personal income (Bureau of Economic Analysis).


Excise Taxes: Excise taxes are broken down into seven components—beer, wine, distilled spirits, tobacco, highway, airport and other.  Beer, wine, distilled spirits and tobacco taxes are allocated based on population over the age of 20 (Census Bureau). The highway, airport and other taxes are allocated based on personal income (Bureau of Economic Analysis).


Estate and Gift Taxes, Customs Duties and Other: These taxes were allocated based on personal income (Bureau of Economic Analysis).


Federal Spending Allocation:


The data from the Consolidated Federal Funds Reports was used as-is.  The county-level data often contained residuals (called “state undistributed”) that were reallocated equally to all counties based on their proportion of known spending.


In recent years, the federal deficit has ballooned to over $1 trillion and could not be ignored in this analysis.  This analysis assumes the federal deficit represents an unfunded tax burden and is allocated to states in proportion to their overall federal tax burden.

 

As a consequence of the federal deficit, the federal government now runs an annual tab of approximately $200 billion for interest payments.  This analysis assumes all of these payments remain in the U.S. and are allocated based on dividends, interest and rents (Bureau of Economic Analysis).


Other Notes:


Some counties were combined in order to maintain comparability among the different datasets from various sources:


  • The counties of Bronx, Kings, New York, Queens and Richmond were combined in New York City.

 

  • Numerous cities in Virginia are county-equivalents which are recombined with their closest county.  For example, the city of Charlottesville is combined with Albemarle county (based on assignment determined by the Bureau of Economic Analysis).

 

  • Due to the uninhabited nature of much of the Alaskan landmass, various datasets have their own methodology for creating county-equivalents.  This study uses county-equivalents based on assignment determined by the Bureau of Economic Analysis. To maintain comparability over time, newer classifications were consolidated back to older classifications.

 

[Click Here to View Federal Tax & Spend Data by State and County]


Table 2 Federal Tax Burden and Spending Ratios by County Fiscal Year 2010.jpg

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