Posted by: John S Kiernan

The extent to which the average American’s tax burden varies based on his or her state of residence represents a significant point of differentiation among state economies. But it’s only one piece of the puzzle.

What if, for example, a particular state can afford not to tax its residents at high rates because it receives disproportionately more funding from the federal government than states with apparently oppressive tax codes? That would change the narrative significantly, revealing federal dependence where bold, efficient stewardship was once thought to preside.

The idea of the American freeloader burst into the public consciousness when #47percent started trending on Twitter in 2012. And while the notion is senselessly insulting to millions of hardworking Americans, it is true that some states receive a far higher return on their federal income-tax contributions than others.

Just how pronounced is this disparity? And to what extent does it alter our perception of state and local tax rates around the country? WalletHub sought to answer those questions by comparing the 50 states in terms of three key metrics. Read on for our findings, expert commentary and a detailed methodology.

1. Main Findings
2. Red vs. Blue States
3. Correlation Analysis
4. Ask the Experts: Making Sense of Funding Disparities
5. Methodology

Main Findings Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/2700/dependent-geochart1.html" width="556" height="347" frameBorder="0" scrolling="no"></iframe> <div style="width:556px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2nZtoXz;

 

Rank (1 = Most Dependent)	State	Total Score	‘State Residents’ Dependency’ Rank	‘State Government’s Dependency’ Rank
48	New Jersey	14.76	49	41
49	Connecticut	13.42	35	46
50	Delaware	12.90	50	45

 

Red vs. Blue States

 

Correlation Analysis

 

Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/2700/dependent-correl21.html" width="700" height="450" frameBorder="0" scrolling="no"></iframe> <div style="width:700px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2nZtoXz;

 

Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/2700/dependent-correl2.html" width="700" height="450" frameBorder="0" scrolling="no"></iframe> <div style="width:700px;font-size:12px;color:#888;">Source: <a href="http://ift.tt/2nZtoXz;

Ask The Experts: Making Sense of Funding Disparities < >

• Fred L. Morrison Popham Haik Schnobrich/Lindquist & Vennum Professor of Law at the University of Minnesota Law School
• Antony Davies Associate Professor of Economics in the Palumbo Donahue School of Business at Duquesne University
• Richard D. Pomp Alva P. Loiselle Professor of Law at the University of Connecticut Law School
• Irene Rubin Professor Emeritus of Public Administration at Northern Illinois University
• F. Stevens Redburn Professorial Lecturer in Public Policy and Public Administration at the George Washington University, Trachtenberg School of Public Policy and Public Administration
• John Garen Director of the John H. Schnatter Institute for the Study of Free Enterprise, and BB&T Professor of Economics in the Gatton College of Business and Economics at University of Kentucky
• Yelena Tuzova Assistant Professor of Economics at Claremont Graduate University
• Robert A. Cropf Professor of Political Science and Director of the M.P. A. Program at Saint Louis University
• Jack M. Beermann Professor of Law and Harry Elwood Warren Scholar at Boston University School of Law
• Robert F. Durant Professor Emeritus of Public Administration and Policy in the School of Public Affairs at American University and Co-Editor of the Routledge Series on Public Administration and Environmental Sustainability
• Sumner La Croix Professor and Chair of the Department of Economics at University of Hawaii at Manoa, College of Social Sciences
• Rick Green Professor in the Department of Political Science at University of Utah
• Carolyn Bourdeaux Associate Professor of Public Management and Policy, and Director of the Center for State and Local Finance at Georgia State University, Andrew Young School of Policy Studies
• Michael Abels Lecturer in Public Administration at the University of Central Florida College of Health and Public Affairs
• Ann O’M. Bowman Professor and Hazel Davis and Robert Kennedy Endowed Chair in the George Bush School of Government and Public Service at Texas A&M University

Fred L. Morrison Popham Haik Schnobrich/Lindquist & Vennum Professor of Law at the University of Minnesota Law School Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? Some expenditures are clearly national (national defense, foreign relations, some broad transportation issues (air traffic control, etc.), oversight of the financial system (regulation of Wall Street, etc.), operation of federal agencies, etc. These are operated by the federal government and paid for by the federal government, even though most of the expenditures happen in a few of the states. What programs should be a state/local responsibility and what should be a federal responsibility? Federal programs and federal funding come into play when the elected representatives think that the problem is "national" in scope and decide to create programs to resolve it. This is a political choice, made by political representatives. What is the most fair way to redistribute federal resources back to the states? This varies with the program in question. In the highways example, money is allocated primarily on the basis of cost; states with high costs get more per capita than states with lower costs. In some cases, Congress decides to pursue a program, but wants to rely on local administration, so it appropriates money to cover the cost of the program (e.g., Medicaid), and also funds to pay for its administration, and also pays states to assume administrative responsibilities. There is no single best way to distribute resources. It depends on what Congress, representing the people, wants to accomplish. My own opinion is that "block grants" are better than programs that are micromanaged from Washington, but even there you might want to provide different levels of funding to different states based on different circumstances (e.g., building highways through mountains, or dealing with a state with a disproportionate number of individuals entitled to social assistance). Antony Davies Associate Professor of Economics in the Palumbo Donahue School of Business at Duquesne University What programs should be a state/local responsibility and what should be a federal responsibility? There is a principal called, “subsidiarity” that holds that government functions should be pushed to the lowest level at which they can be performed. For example, if caring for the poor can be adequately handled at the local level, then the state should not be involved. If local government can’t handle the problem, but the state can, then the federal government should not be involved. The federal government should only be involved when the problem cannot be handled at the state level. This is the opposite of how we govern. Upon seeing a problem, Americans’ tendency is immediately to jump to the federal level. The problem with this approach is two-fold: (1) We tend to get a one-size-fits-no-one solution as Congress can’t craft law that takes into account particulars and nuances across thousands of different localities, and, even if it could, federal bureaucrats can’t manage programs that require different solutions for different localities. (2) We miss the opportunity to experiment. No government program is perfect, and few are close to perfect. When the federal government institutes a program, we get to see how the one program operates but we don’t get to see how alternative programs might have operated. Designing and administering programs at the local and state levels results in at least 50 different attempts at solving the problem. The states and localities that adopt inferior solutions have the opportunity to learn from the states and localities that adopt superior ones. Where the federal government has allowed experimentation, we have already seen, for example, that a 55 mph highway speed limit isn’t appreciably safer than a 65 mph speed limit, and that legalizing marijuana doesn’t encourage substance abuse but does significantly boost tax revenues. Going by the sizes of their economies, each of the 50 states is larger than half of the countries in the world. And on a per-capita basis, even the poorest US state is richer than 75% of the world’s countries. That suggests that the individual US states have the economic clout to handle all governing on their own. The only need for federal governing is for those things that must be uniform across the individual states – and only two come to mind, defense and constitutional justice. What is the most fair way to redistribute federal resources back to the states? The question has no answer because it confuses the words, “fair” and “equal.” There are better (and worse) ways to redistribute federal resources back to the states equally. There is no way to redistribute federal resources back to the states fairly because the act of taking money from a state that the federal government doesn’t need is, itself, unfair. How do we know the federal government doesn’t need the money? Because it’s giving it back to the states. A slightly less unfair question is how to redistribute states’ resources among the states. It may be desirable, for example, for richer states to subsidize poverty programs in poorer states. But that shouldn’t involve the federal government at all – the states can handle such redistribution among themselves as they currently handle many other agreements among themselves like credit for taxes paid by residents of one state to another state. A reasonable question is, what happens when rich states use their money to force poor states to do their bidding? But this is exactly what the federal government does when it threatens to withhold federal funds if a state doesn’t enact or enforce laws that please the federal government – think the highway funds and the national 55 mph speed limit, highway funds again and the 21 drinking age. The benefit to a poor state of being beholden to a rich state rather than to the federal government is that there are 49 other states to turn to. There is no alternative to the federal government. Richard D. Pomp Alva P. Loiselle Professor of Law at the University of Connecticut Law School Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? One of the quintessential government functions is the redistribution of income and providing a safety net for the unfortunate. Other federal responsibilities involve stabilizing and growing the national economy, national defense, a national transportation infrastructure, a national telecommunications infrastructure, a national mail service, national defense, international affairs, public health, printed currency, national parks and historic monuments, and veteran affairs. We need federal taxes to finance these responsibilities. Other responsibilities are more local, such as issuing drives licenses, running the schools, registering cars, birth certificates, police and fire, courts, licensing professionals, zoning, housing, law and order, prisons, garbage, roads, public transport, water, utilities. Some of these overlap, of course, with the feds. But the bottom line is that allocating federal spending based on how much a state pays in federal taxes would ignore a state’s ability to meet these local goals. Irene Rubin Professor Emeritus of Public Administration at Northern Illinois University Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? My opinion is that we are one country, one society, and that we need to help each other, that rich states should help poorer states. Having said that, the important question is how much? And how should need be measured? By poverty rates? By the size of the tax base? By tax effort? Tax effort measures the level of taxation compared to the level of income or wealth; we could argue that those states already taxing at high levels compared to income have higher need than those with lower tax effort. We could look at the fairness of the tax system in each state, so that those that burden the poor more heavily than the rich maybe should get less back from the federal government, as an incentive to make the tax system fairer within the state. We can measure need in specific areas, such as child death rates, or number of people without access to clean and safe water, or long term unemployment rates. We don’t always distribute federal money in proportion to need. I was disturbed, for example, when after 9/11, federal funds for bolstering anti-terrorist protections were distributed largely by state rather than by need, where need was reflected in the number of vulnerable installations, such as public water supplies, communications hubs, and the like. New York City makes a better target than Tuscaloosa. Our Congress was based on a compromise that empowered each state equally in one house and each citizen equally in the other; we do similar things with our federal grant money, allocating a base amount to every state and then sometimes more to those that have more population or greater need. The result of the structure of congressional representation has been to give smaller, more rural and more conservative states relatively more power than more populous ones, slanting the playing field in that direction. When the same principle is applied to the distribution of federal grants and programs, this balancing act can result in inadequate funds delivered to those who really need them, because substantial amounts of money will have been subtracted from the total by giving the money to all states equally. Those who need it more may not get enough. Though this allocation may be less than ideal from the perspective of solving problems, from a practical politics point of view, to get a large enough coalition to vote for a program, it may be necessary to divide funds in this way, partly by state, partly by population or some other proxy for need. The exact division of funds between the two should depend on the type of program and urgency of need, spending just the minimum necessary to get a coalition on those whose need is less. That is my normative take on the subject, my compromise between the ideal of allocation according to some measure of need and the practical politics necessary for passage. I may have to give too many miles of road to Nebraska in order to get some mass transit in the District of Columbia. Politics is about compromise. Only ideologues and academics who are too removed from political reality advocate for the ideal and won’t budge from it. What programs should be a state/local responsibility and what should be a federal responsibility? This is an issue that has been fought out for years, in academia and in the policy world, and there are few clear answers that are absolutely technically correct. There is however tradition and the constitution on one hand, and an increased complexity of shared responsibility on the other. The federal government deals with trade, foreign policy and diplomacy, postal service and communications, and military and domestic security; states and their local governments deal with most education, policing, state and local courts and jails and state prisons, and fire protection. Shared functions include transportation, public health, and criminal investigation. Both the national government and the states engage in some forms of regulation, and whose rules apply when and where and whether state rules can exceed federal rules have been topics of contestation. One can make the argument that regulation ought to be at the national level so that rules are uniform across the nation, especially for businesses that cross state borders. That is also the argument for the national government to have the responsibility for communications, since they, by nature, cross state boundaries. I think states should be permitted to exceed federal standards if they wish. Thus the national government may pass clean air acts or require clean water, and states should be able to take those standards as minimums, and if they wish, pass even stronger laws to that effect. Voting laws should be at the national level, to ensure each person has a chance to vote, regardless of ethnicity, religion, or party preference, and to ensure fairness across the states in voting for national office. Democracy depends on equal enforcement of such laws. Similarly, civil liberties and civil rights need to be enforced at the national level. The trend has been for more cooperation between national and state governments in a variety of functions. Since the federal government is generally limited in the functions it can perform and its jurisdiction over the states, by the constitution, its primary tool is not command, but persuasion, through grants, to encourage states to do particular things. The federal government sometimes attaches conditions for receiving those grants. When the federal government does try to mandate some activity, in theory, it has to also pay for those activities, though the law that requires such payments has some pretty big holes in it. So I can tell you what is the current division between the nation and the states, what is performed where, but not necessarily what the ideal would be or should be, other than some obvious ones, that need to be performed on a national basis, such as defense. I can tell you the trend, which is in the direction of more sharing of functions. For example, in recent years, the federal government has taken some small responsibility for education while the rest of the responsibility falls on the states, who delegate most of that responsibility to their local governments. But there are many functions that could be reasonably placed in either location or might make sense to provide on a regional level between state and nation. What is the most fair way to redistribute federal resources back to the states? The fairest way is to distribute by need, variously measured, but the most realistic way is partly by state, partly by need, taking care not to spend so much equally on each state that too little money is left to deal with real need. What matters, and where the thinking needs to go, is how to measure need, and how much reallocation there should be. How much leveling should occur? More than zero, but less than 100 percent, probably somewhere in the middle. We need to be cautious about impoverishing too many people, because the poor are not others, outsiders, who have nothing to do with us, they are part of us, part of the nation, and they affect us profoundly, in many ways. We are one nation, one community, whether people are willing to recognize it or not. Disease and crime spread from one community to another, the costs of imprisonment affect not only husbands, wives and children of those imprisoned, but also the taxpayers who pay for the prisons and jails. We will be caught if we try to ignore our interconnectedness. But I have no clue to how much rich states should contribute to poorer ones or needier ones. It is important to keep in mind that there is not one federal allocation to each state, but instead a large number of separate programs with different characteristics. If you look at income support programs from the federal level, they are based on the number of poorer people; poorer states are going to get more money. If you look at defense spending and contracting, the location by state could be almost anyplace - is it evenly divided by state? What are the criteria for choosing? Anything besides powerful legislators representing a given state? How should transportation grants be allocated? Farm support programs are going disproportionately to rural states - is that ok? Should there be a balance so that a disproportionate amount of money for mass transit goes to the larger, more populous states? No one making policy looks at the sum of these programs; they are allocated program by program. So you have to judge allocation issues program by program, and decide whether a different allocation is possible or necessary to achieve the goals of the program. F. Stevens Redburn Professorial Lecturer in Public Policy and Public Administration at the George Washington University, Trachtenberg School of Public Policy and Public Administration Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? Because incomes and wealth are higher in some states than others, because the federal income tax is progressive (higher rates at higher incomes), and because many federal benefit programs aid poorer people and communities, residents of wealthier states pay more in taxes per capita and receive less in federal benefits and services per capita than do others. Over the years, this redistribution has helped equalize opportunities for people across the country and arguably made the U.S. a stronger country. Redistribution is also is a way of compensating the people of individual states for belonging to a single currency union, a union that limits their independence in responding to economic cycles. To see why this is important, it helps to look at the poorer countries that in recent years became members of the Euro zone, who do not benefit from substantial transfers from richer members of the monetary union but can no longer adjust their currency values to maintain competitiveness. They have suffered economically as a result, and it is not clear that their union will hold. What programs should be a state/local responsibility and what should be a federal responsibility? When the question is asked in terms of programs or functions, there is no simple answer. A case can be made that some functions – such as defense, international affairs, and homeland security – are inherently national government responsibilities. A case also can be made for federal responsibility to reduce inequalities and protect civil rights for minority groups that historically have faced and still face discrimination. The case for decentralization to state and local governments rests in part on their ability to tailor their design and delivery to state or local preferences. We have a mixed and blended system of responsibilities for many functions and programs that reflects a series of historical decisions trying to find the right balance and blend of responsibilities for each function across government levels. No simple or final answer is possible given the nature of our federal system. What is the most fair way to redistribute federal resources back to the states? The premise of this question is that there can be a single standard of fairness that could be the basis for the geographic distribution of federal spending (including provisions of the tax code that reward certain sources or uses of income and thus function much like spending). A better way to approach this may be to start with the full array of national public purposes and responsibilities. For each purpose or responsibility, there is probably a different best answer for: (1) who should pay? (2) where and how should services or benefits be delivered? and (3) what complementary roles can each level of government play when providing a given service or benefit. The answers to those questions, when aggregated, determine the best geographic distribution of federal revenues or resources. Because there is no formula that can answer this question, it is answered in practice through politics, and the answer is always provisional. John Garen Director of the John H. Schnatter Institute for the Study of Free Enterprise, and BB&T Professor of Economics in the Gatton College of Business and Economics at University of Kentucky Generally, the level of government which functions ought to be assigned correspond to the nature of the beneficiaries of the program, i.e., are they local, statewide, or nationwide. So, for example, local roads, sewer systems, police, affect mostly those locally so should be locally determined. (Of course, all cities have sewer systems, but the sewer system in Helena, Montana does not affect the citizens of Savannah, Georgia.) State courts (dealing with state laws) should be state-level. A number of things, by their nature, affect everyone in the nation. A military force protects all citizens, regardless of location. There are also functions that may cross state lines where federal involvement is appropriate, e.g., an interstate highway network, interstate waterways, pollution abatement. The reason for the local or state assignment as noted above is that it enables local/state governments to act on local conditions that may not apply nationally so the program fits the local circumstances. This is unlikely to be the case for a federal program. Also, local/state assignment requires the tax revenue be collected at that level to pay for any programs. This provides for better incentives so that local government, realizing they must tax locals for these programs, are more likely to develop programs that the locals desire. If local programs are paid for by federal tax dollars, this breaks down because local governments will expand programs of questionable value to the local if someone else pays for it. This problem arises in the issues I discuss next, as well. It is often argued that income redistribution/welfare programs (e.g., food stamps, Medicaid, cash assistance) should be federal in nature. The reason is the concern that states with high welfare benefits will become “welfare magnets,” meaning that they would attract the poor from other states. This would cause these states to be paying assistance to other states’ (previous) residents and not be fiscally feasible. The latter induces states to reduce the amount of low-income assistance that they do, implying a smaller safety net for the poor. It is not clear how sizable an effect this welfare magnet would have nor how much it would affect states’ welfare policies. An alternative argument is that if low income migrants are primarily looking for jobs, it is likely that a low tax - and low welfare spending state - may be more attractive to them rather than the converse. If so, the above argument is not a strong one. But regarding federal finance of welfare programs, the above issues rear their head in a big way regarding Medicaid. It’s a federal program that states may augment. The federal government pays at least 50% of each state’s Medicaid bill. Many have concluded that this has induced states to expand Medicaid beyond what it otherwise would have been. A primary reason is that for each $1 increase in the state’s Medicaid, the state pays no more than 50 cents. This federal financing “matching” formula has thus been problematic. Also, states can only redesign Medicaid with special permission from the federal government. The federal program has many flaws, including low provider reimbursement rates and stiff penalties for work. With state control, states may have remedied these, but cannot do so in a federal program. Regarding allocation of federal expenditures and taxes to states (aside from welfare programs), ideally, it is sensible to link the share of taxes paid by a state to the share of benefits received by the program. This would induce congressional representatives to favor programs that are, on net, beneficial to their constituents and also to the nation. Note that this is the problem with earmarks. Congressmen try to get benefits for their constituents that someone else pays for. This linkage between benefits and taxes is feasible in some contexts. Highways are an important example. Federal gas tax revenue is roughly proportionate to highway use. Expenditure, by state, could be allocated in proportion to the revenue. Of course, this linkage of taxes and spending is not feasible in all cases, e.g., national defense. Yelena Tuzova Assistant Professor of Economics at Claremont Graduate University Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? My answer is that the federal funds allocation should be adjusted depending on how effective, superior and self-sufficient the state/local government is, how well the economy performs overall, and how effective states do their work. What programs should be a state/local responsibility and what should be a federal responsibility? It is difficult to draw the line between federal and state government responsibilities. At times the programs require the efforts shared by both the federal authorities and state authorities (i.e. in building highways, establishing courts, providing transportation, etc.). Nevertheless, in my opinion, social security, health care, infrastructure, defense, and environmental protection programs should be the primary focus of the federal government. The reason is simple. These programs are expensive and require serious funding. For instance, in 2015, the federal government spent $888 billion (or 24% of the budget) on social security, which included benefits for retired, deceased and disabled workers and their families. 938 billion (or 25% of the budget) was spent on health insurance programs. $602 billion (or 16% percent of the budget) was paid for defense and security-related activities. As we can see, the budget is what dictates the rules. Unlike the federal government, which can incur a deficit to fund its day-to-day operations, state and local governments by law must operate within a “balanced budget”, meaning spending cannot exceed tax revenue. Thus, the state/local government programs should be significantly less expensive than federal programs. Moreover, in my opinion, local governments are typically closer to their constituents and are more aware of the local needs of their regions. Thus, the state and local government programs should include education, transportation, police, fire, and science and research. Having more autonomy at the local level is critical for being able to provide services more effectively and efficiently to the residents. What is the most fair way to redistribute federal resources back to the states? There is no specific threshold that we can use to evaluate whether the distribution system is fair or unfair. In my opinion, the fairness of a finance system should always be measured by three criteria: (1) state properties; (2) funding distribution; and (3) state effort. State properties we use to recognize the variety of interstate differences. Each of 50 states is unique. Wages are different. Population density is different. State sizes are different. Poverty concentration varies. Economically, some states may perform better than others. Funding distribution should measure the distribution of state and federal funding relative to the poverty level across states. State effort should reflect the differences in state and federal spending in sponsoring local programs across different states. As such, this three-step procedure may be used to find the optimal or the most equitable way to redistribute resources between the federal and state governments. Robert A. Cropf Professor of Political Science and Director of the M.P. A. Program at Saint Louis University Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? It might, on the surface, appear fair that federal resources be allocated to states on the basis of how much they pay in federal taxes but it is actually more fair to allocate such resources on the basis of state needs. So, for example, some states might require more highway funds because the size of their states makes highway construction and repair more expensive than other states (think of Alaska compared with Connecticut). Other examples might be more funds for pollution abatement because of industry (Michigan compared with Hawaii). It is probably more the case that some taxpayers subsidize other taxpayers rather than states subsidizing other states. Some states have more high-income taxpayers (for example, Connecticut) than other states (Mississippi). What programs should be a state/local responsibility and what should be a federal responsibility? In general, there should be shared responsibility, that is, federal and state/local responsibility, for certain public goods like K-12 education. That is because education serves both a national purpose (economic growth) as well as a state and local purpose. A more educated populace will be more likely to be employed and therefore paying more in federal, state, and local taxes over the worker's lifetime. Other public goods, like local parks and public safety, should be financed mainly at the state and local levels because that is where the benefits of those services are experienced. National defense and Social Security are national in scope and should be entirely federal. What is the most fair way to redistribute federal resources back to the states? The most fair basis should be objective need and determined on a case by case basis. States with more cities might require more assistance for urban problems. More rural states might require more in the way of allocations for conservation, roads and agriculture. Jack M. Beermann Professor of Law and Harry Elwood Warren Scholar at Boston University School of Law Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? I don’t think that state lines should be that important in determining federal spending. The federal government should do what is best for the country as a whole, regardless of state lines. If that means that some states receive more federal money than their citizens pay in and others receive less, so be it. For example, naval defenses may result in higher spending in coastal states, but the country as a whole benefits from them and I don’t think we should worry about that in determining how much to spend. Robert F. Durant Professor Emeritus of Public Administration and Policy in the School of Public Affairs at American University and Co-Editor of the Routledge Series on Public Administration and Environmental Sustainability Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? Federal dollars have traditionally been used as a redistributive mechanism to help less financially well off states and towns provide goods, services, and opportunities to citizens that they would not have the resources for. If one conceives of the nation as a "nation" with a mobile society and committed to providing a floor of goods and services that all citizens should have regardless of their geographic origins, this is less a subsidy to one as an investment to all. Some states win, others lose in the short term in specific policy areas, but the quality of, say, education, that a mobile society requires, means that some redistribution is necessary to advance equality of opportunity for all citizens who may move from state to state over time. What programs should be a state/local responsibility and what should be a federal responsibility? This is too broad a categorization to make sense. Most policies today are developed and delivered by a host of different levels of government, and by different sectors partnering with each other to meet needs. States should be used as laboratories for trying out various policy and program initiatives, and then brought to scale at the federal level if they work and be tailored accordingly to local circumstances. Even traditional areas allocated to the federal government like national security now depend on collaboration of federal, state, local, county, and international agencies to work effectively. The ideal once this takes place is that the feds set goals and allow states flexibility to experiment about how best to realize those goals. In this way, we gain learning and evidence-based policy making and implementation. What is the most fair way to redistribute federal resources back to the states? Again, redistributing federal resources back to the states is a misnomer. Federal, state, and local resources depend quite heavily on national economic performance, as well as on intergovernmental transfers of federal money to the states. Thus state resources are not solely generated by states or localities, so they are not theirs alone to be "redistributed”. Feds set the rules for and police markets to operate in the first place, and can be distorted to favor state, private sector, and local actors, when the latter groups lobby successfully to alter rules to benefit particular interests, as they have since the 1980s in many industries. Politics and economics are closely intertwined in reality, and therefore to talk about "whose money is whose" distorts policy deliberations. Sumner La Croix Professor and Chair of the Department of Economics at University of Hawaii at Manoa, College of Social Sciences Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? This is an absurd way to think about Federal spending... defense facilities should be put where they have the highest benefits, not according to a federal budget rule. What programs should be a state/local responsibility and what should be a federal responsibility? The US constitution specifies some responsibilities and some are clearly state/local or national, given their geographic scope, and gain from decision making when voters have more specific information about choices. But many others will be hybrids, with components that are federally or state/local funded. What is the most fair way to redistribute federal resources back to the states? Rules specified in federal legislation are usually the best way -- think the highway program. Rick Green Professor in the Department of Political Science at University of Utah Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? No. The former defeats the very purpose of aggregating funds for matters of national interest and policy. Federal policies should raise all boats. Furthermore, states that are unwilling to tax their people according to their ability to pay are also typically the states who neglect many of the needs and rights of individual residents - especially minorities. The Fed government should be able to help those individuals, in any case. Just because a state may be unreliable or unhelpful to their residents, doesn't mean the Fed government should do the same. Just the reverse is in order. What programs should be a state/local responsibility and what should be a federal responsibility? There is no easy or simple answer to this question. Wherever possible, the federal government should either entice or require that the state matches on shared programs - whether regulatory or service/benefit in nature. States that are more responsible can/should be given incentives/rewards for doing more things. Very few policy arenas are exclusive to one level of government or another. Perhaps immigration is and should be the sole responsibility of the federal government. Defense may be close to that standard as well. What is the most fair way to redistribute federal resources back to the states? There is no one right answer for this. Congress can and should distribute some pork through its auspices. The "no earmark" rule is sheer folly on many levels, including as it figures into congressional leadership (or lack thereof) and organization. Federal agencies and professional bodies should and do exercise a lot (perhaps most) of discretion on this as well. The courts exercise a small amount of power here too. We should have plural bodies making these decisions. We do not want a monolithic voice on such matters. This fits with the principle of checks and balances, as well as with the variety/heterogeneity of public policies. Carolyn Bourdeaux Associate Professor of Public Management and Policy, and Director of the Center for State and Local Finance at Georgia State University, Andrew Young School of Policy Studies Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? Obviously, the federal role can be whatever the citizens and their elected officials want it to be; however, there are theories of fiscal federalism that suggest when the federal government is more appropriate to provide a particular service or function versus state or local government. Most who study public finance would agree that the federal government plays an important role in redistributive policy as well as in setting and financing programs that require national coordination to be successful. Because different states have different levels of poverty or income and may also need different levels of assistance to meet national objectives, states end up subsidizing one another. Redistributive policy: The argument about redistributive programs is that higher levels of government should provide anti-poverty assistance because local governments and increasingly, states, compete for economic development and jobs while trying to avoid attracting poor people to their jurisdictions. If a local government or state provides more generous social assistance than neighboring jurisdictions, they risk attracting more low-income people and repelling more high-income people from their jurisdiction. Lower income households may pay less in taxes than the services they consume, while higher income individuals generally pay more in taxes relative to the services they consume. As a result, there is an incentive for local and state governments to “race to the bottom” in terms of providing redistributive policy. However, the federal government can control its borders and/or can exclude non-citizens from receiving benefits and so can provide a national social welfare program without drawing more poor people into the country. The federal government does not have the same incentive to race to the bottom. Another argument for federal redistributive intervention is that states are affected by forces beyond their control at different times and in different ways. Natural disasters are an obvious example, but also states are affected by global economic forces. Southern California was hit hard in the 1990s by job losses in the aerospace industry; in the 2000s, Georgia and North Carolina have been hurt disproportionately by losses in textile, furniture, and apparel manufacturing. By having federal funds assist with rebuilding after natural disasters or assist with unemployment or economic displacement, the federal government serves as a form of “insurance policy” with states essentially pooling their resources to help one another overcome economic hardships. Additionally, taxing and spending are not the only set of policies at the national level that have redistributive implications. For instance, economists are increasingly identifying the liberalization of trade with China as a key driver of many states’ current economic hardship (Georgia and North Carolina again being a case in point); however, at the same time, other states and regions have benefited from this trade. It’s only fair that those regions that have benefitted would help with the recovery of parts of the country disproportionately hurt. Policies of national benefit: With some policies, many states benefit even though spending is not distributed equally across states. For instance, all states are made better off by having a well maintained, interconnected national road system. Although the federal government may spend disproportionately in states that are largely rural, other states may benefit more than the state that receives the direct funding because these roads give neighboring states better access to national and international markets. What programs should be a state/local responsibility and what should be a federal responsibility? Generally, policies that are redistributive (such as Medicaid, food stamps, welfare and other social insurance), macroeconomic (counter-cyclical spending to offset recession), and ones that require national-level coordination and cooperation in order to realize the benefits of a policy (federal highway system, post office, defense, regulatory policies, etc.) should be provided at the federal level. Additionally, policies where states face economic pressures from business to skimp or avoid a policy tend to benefit from the national government creating a level playing field (such as environmental or antitrust regulation). Policies that promote economic development or that really need to be tailored to individual community conditions and desires are best provided at the state/local level. States may move somewhat between the different levels, in some cases providing more redistributive policies or policies that require state-level coordination. Service generally considered clearly the province of local (and to some degree state) governments include police, fire, libraries, local transportation networks, community planning and, to some degree, education. Most policies in this country actually have many dimensions, so while you might want to have city roads maintained by local governments that compete for economic development and so (in theory) should have a strong incentive to maintain their local infrastructure. Meanwhile, interstates require redistribution and are a common endeavor that most likely should be funded at the federal level. What is the most fair way to redistribute federal resources back to the states? Federal funding should be distributed in such a way as to support national priorities or initiatives and may be particularly important where cross-state coordination is required for success and to help address natural disasters as well as poverty and economic dislocation. In a sense, the federal government needs to attend to national interests. We are all part of one country and attention to “redistribution between states” should be an incidental by-product of federal policy, not the focus. Michael Abels Lecturer in Public Administration at the University of Central Florida College of Health and Public Affairs Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? To answer this question you must ask a question about what outcome or goal do you seek. Traditionally, a role for the federal government was to provide a degree of equalization between states based on their relative resource capacity. States are very unequal in terms of economic capacity e.g., Mississippi vs. Massachusetts. Historically, promoting a degree of interstate equity was a national goal. We as a nation considered a role of the federal government to send more to poorer states with less economic capability than what those states contributed. Education was particularly such a goal as was transportation, etc. Today as the country fragments politically, culturally, and economically it seems this national value is being, or already has, been abandoned. What programs should be a state/local responsibility and what should be a federal responsibility? I know much political debate seems to be anchored on an ideologically based interpretation of the 10th amendment to the U.S. Constitution, but I do not think it is possible to draw clear lines on this question. For example most conservatives, especially far right conservatives, will say that education is a role of the states and local. However if we as a country place value on equal opportunity then the federal government must be involved in education. Again, using the example of Mississippi and Massachusetts, do we as a country care if youth in Mississippi have the lowest test scores for math and reading than do students in Massachusetts? While an absolute certain correlation cannot be made between education expenditures and outcomes, if we as a country care that all of our youth have equal opportunity in education then the federal government must be involved in assisting with some equalization of resources, as well as equalization of expected educational outcomes. Another interesting example is transportation. Most citizens would probably accept that facilitating a high value national transportation system is a national responsibility under the broad scope of interstate commerce. Within that responsibility, the federal government should require minimum maintenance efforts on the part of states before any federal monies are invested in state infrastructure. This should include compliance with national transportation goals to include high quality airports, light rail within metropolitan areas, maintenance and expansion to meet growth needs of highway networks, etc. What is the most fair way to redistribute federal resources back to the states? Using the word “redistribute” assumes that we as a country have placed some value on equalization of opportunity. It could also mean redistributing resources to meet federal goals. In our current state of societal fragmentation and political dysfunction, both equalization of opportunity, as well as meeting federal goals are probably beyond the scope of the possible. Should they ever be considered within the realm of the possible, several evaluative criteria should be set before federal money is allocated to states. First, the resource capacity of the state should be considered, and how much of that resource capacity is utilized in public investment? Many states have made a policy decision to not utilize the resource capacity they possess as a mean of maintaining a low tax base. Such states should not receive the same percentage of federal aid as do states that more fully use their resource capacity. The second very important criterion should be: does the state have a comprehensive, integrative plan that will insure the federal aid is invested in areas that will help the state address critical needs? Each state will be different but should have a well-conceived plan to meet critical needs of the state and overcome identified deficiencies, e.g., education, infrastructure, etc. Third, to receive federal aid, a state should be required to match the federal money with state money. In all cases, such maintenance of effort should not be less than 20%. State commitment to succeed must be demonstrated by willingness to invest citizen money in the effort. Ann O’M. Bowman Professor and Hazel Davis and Robert Kennedy Endowed Chair in the George Bush School of Government and Public Service at Texas A&M University Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others? In the U.S. federal system, states are both allies and rivals. A subset of states may join together to resolve a shared problem even as they compete with one another for economic development. States have the same legal status in the federal system regardless of their population size, location, or resources. Their political and economic standing, of course, varies. Allocating federal dollars to states proportionately based on what they pay in federal taxes would make rich states richer and poor states poorer. The result would weaken the federal system. What programs should be a state/local responsibility and what should be a federal responsibility? Simply put, the federal government should do what it does best (the U.S. Constitution provides a good place to start for guidance on this question); states and their localities should do what they do best. Generally, programs possessing a potential “race to the bottom” effect in which interstate competition motivates states to provide fewer program benefits are best provided by the federal government. States should take charge of what economist Alice Rivlin has called the “productivity agenda.” After all, it is at the state and local level that policy experimentation flourishes. What is the most fair way to redistribute federal resources back to the states? A fair way to redistribute federal resources to states is through a mechanism that takes into account a state’s revenue capacity, its political willingness to tap that capacity, and its needs. In other words, an efficient mechanism is one that prevents state shirking— wealthy states choosing to keep own-source taxes low in anticipation of receiving additional federal monies. However, these days, as political scientist John Kincaid has noted, the amount of federal aid allocated to people through programs such as Medicaid is significantly greater than federal aid allocated to state and local governments through programs such as Community Development Block Grants.

Methodology

The following metrics were included in the report for context only. They represent subsets of federal funding and are reflected in the first two metrics.

• “Federal Contracts” divided by “IRS Collections”
• “Grants” divided by “IRS Collections”

 

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