Posted by: Richie Bernardo

Americans value independence. We fought hard for it during the American Revolutionary War. Today, however, we celebrate not only our freedom from the British crown but also our strong ability to rely upon ourselves as individuals. It’s a virtue we instill in our children, employees, organizations.

But what does it mean for whole populations to be “independent” in the modern sense of the word?

In this report, WalletHub’s data team addressed that question by comparing the 50 states based on five sources of dependency: consumer finances, the government, the job market, international trade and personal vices. We broke down these categories into 32 key indicators of independence in order to determine which states are most self-sustaining. Read on for our findings, methodology and expert advice on overcoming our reliance on others.

For getting a sense of just how free Americans are feeling, financially, check out WalletHub’s nationally representative Fourth of July Credit Card Survey.

1. Main Findings
2. Ask the Experts
3. Methodology

Main Findings

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Overall Rank (1 = Most Independent)	State	Total Score	‘Financial Dependency’ Rank	‘Government Dependency’ Rank	‘Job-Market Dependency’ Rank	‘International-Trade Dependency’ Rank	‘Vice Dependency’ Rank
1	Colorado	69.28	2	12	5	5	11
2	Utah	67.38	11	10	1	13	9
3	Minnesota	66.25	9	2	10	18	25
4	New Hampshire	65.19	4	9	8	32	10
5	Wisconsin	63.22	8	19	2	14	27
6	Massachusetts	62.77	1	11	17	30	26
7	California	61.97	12	7	38	21	20
8	New Jersey	61.93	5	6	36	34	13
9	Virginia	61.33	13	14	22	12	28
10	New York	60.79	3	25	37	22	3
11	Nebraska	60.71	31	8	9	23	31
12	Iowa	60.23	14	16	11	29	23
13	Hawaii	59.83	15	26	14	16	16
14	Connecticut	59.68	6	15	43	37	5
15	Kansas	59.51	20	4	31	31	29
16	South Dakota	58.91	27	33	3	10	8
17	Maryland	58.74	16	40	18	6	14
18	Nevada	58.67	43	5	40	11	22
19	Delaware	58.59	26	1	27	42	17
20	Montana	57.86	34	44	26	1	2
21	Florida	57.27	35	23	30	8	19
22	Illinois	56.99	22	3	34	39	44
23	North Dakota	56.76	18	18	28	38	18
24	Rhode Island	56.41	10	28	41	24	24
25	Wyoming	55.91	28	31	48	3	7
26	Oklahoma	55.73	37	29	44	2	21
27	Idaho	55.58	45	32	7	7	15
28	Vermont	55.30	24	34	24	28	6
29	Pennsylvania	54.76	19	27	39	20	32
30	Oregon	54.40	17	41	6	19	39
31	Missouri	54.07	33	30	21	9	33
32	Michigan	53.37	21	17	16	43	43
33	Arkansas	53.04	47	22	13	17	41
34	Arizona	52.68	41	39	35	15	4
35	North Carolina	52.58	36	21	23	33	35
36	Ohio	52.54	23	24	32	35	46
37	Washington	52.33	7	20	19	47	38
38	Maine	50.22	29	45	12	25	45
39	Texas	49.96	30	13	29	45	47
40	Indiana	49.74	32	36	4	44	30
41	Georgia	49.28	40	35	15	36	42
42	New Mexico	47.05	50	50	47	4	1
43	Tennessee	46.70	38	42	20	41	37
44	Alabama	42.24	44	46	45	40	36
45	South Carolina	42.23	39	43	25	50	12
46	West Virginia	42.18	48	47	46	27	34
47	Mississippi	40.77	49	49	42	26	48
48	Alaska	40.62	25	38	50	46	40
49	Kentucky	37.20	42	48	33	49	50
50	Louisiana	36.25	46	37	49	48	49

 

Ask the Experts

Reliance on others can be challenging to overcome. For the best ways to achieve greater independence in several of the dependency categories we examined in this report, we asked a panel of experts to share their thoughts on the following key questions:

1. Is it fair that some states are more dependent than others on the federal government?
2. What tips do you have for a person who wishes to increase his or her financial independence? What are some first steps?
3. What tips do you have for a person who wishes to reduce his or her job dependency? Should they try to join the “gig” economy?
4. Should presidential campaigns be publicly funded in order to help ensure the president is as independent as possible from special interests?
5. Should states try to make their economies more or less dependent on international trade? How?

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• Peri E. Arnold Professor Emeritus of Political Science at University of Notre Dame
• Paul Brace Clarence Carter Chair in Legal Studies and Professor of Political Science at Hanszen College
• Michael Malmfeldt Assistant Professor of Accounting at Shenandoah University
• Michael Federici Chair of the Department of Political Science and International Relations at Middle Tennessee State University
• Joseph R. Reisert Harriet S. Wiswell and George C. Wiswell Jr. Associate Professor of American Constitutional Law at Colby College
• Earnest N. Bracey Professor of Political Science in the College of Southern Nevada
• Aaron Yelowitz Associate Professor of Economics at the University of Kentucky and Associate Director of the Schnatter Institute for the Study of Free Enterprise
• Olha Krupa Assistant Professor at Seattle University

Peri E. Arnold Professor Emeritus of Political Science at University of Notre Dame Is it fair that some states are more dependent on the federal government than other states? I don’t see fiscal imbalance among the states as a matter of fairness. Of course, there are large differences among states in the amounts of money they send to the federal government and the monies received from Washington, DC., California, New York, and Illinois, for example, pay far more in federal taxes than they receive in federal monies. On the other hand, Mississippi, Alabama and Kentucky are net winners in their fiscal relationship to Washington, receiving more and paying less. There are many causes for those imbalances, however, and few of them depend on conscious decisions in Washington to reward some states while penalizing others. Consider some of those causes of fiscal imbalance. First, the “losers” are states with the highest individual and business incomes. Consequently, they pay far larger shares of the federal revenues than do poorer states. Second, the poorer states have larger proportions of people and communities in economic need, and receive more funds through federal safety net and equity programs. Third, federal reservations, public lands, and facilities, all drawing in federal dollars, are distributed unevenly across the states, more a matter of history and geography than congressional pork barrel deals. Federal funds spent in poorer states produce benefits for all of us in the form of reduced poverty and greater equality, better education, and improved public services. To think is unfair that some states receive more federal dollars than others is to reject the idea that we, Americans, are all in this together. However, it is unfair that in our partisan political discourse the representatives of the largely Republican “winner” states denounce the federal government and federal spending while continuing to pocket federal benefits. That makes no more sense than children at Christmas denouncing Santa Claus. What tips do you have for a person that wishes to increase his/her financial independence? What are some first steps? Short of inherited wealth or an opportune marriage, I understand financial independence to require stable employment and financial security. The former is achieved with education/training and the latter by consistently careful money management. In a time of job churn, individuals can best assure employability with skills that match demands. That requires updating one’s skills over time. Security, on the other hand, is a matter of foresight and self-control. Steady saving and intelligent investment are keys to security. Few young people realize the power of compounded investment earnings over decades. With regular savings, most young people can eventually achieve financial independence. What tips do you have for a person that wishes to reduce his/her job dependency? Should they try to join the “gig” economy? For most people, the “gig” economy means low income and no benefits. Whether it is driving Uber or adjunct college teaching, most “gig” jobs are nothing more than casual labor -- low paid and disposable. I think young people should decrease “job dependency” by increasing their marketability. The most immediate solution to “job dependency” is another job offer. That requires individuals continue their job-related training, graduate degrees or job certifications. It requires good performance on the job. And it requires active networking so that people in your industry know your value. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? Political money has poisoned American government. See Jane Mayer’s Dark Money. Wealthy donors and interest groups donate huge amounts to politicians, often indirectly and surreptitiously. Their covert aim, of course, is to buy politicians. The problem is not limited to presidential politics. Political money has even more malignant consequences in congressional politics and helps explain why the contemporary Congress is dysfunctional. Were we to prohibit large contributions, limit private donations to small sums, and publicly fund campaigns, we would transform our capacity for self-governance. Should states try and make their economies more or less dependent on international trade? Most American states are enmeshed in global trade flows. If they contain major manufacturing industries, autos, commercial aviation, military hardware, machine tools, they are importing component parts and exporting both parts and finished products. Obviously, state governors think international trade is crucial to their economies; witness the procession of their trade delegations to Asia and the European Union members. For all but eight states, the combination of imports and exports total at least ten percent of state economic output. Michigan leads the states with the highest proportion of its economy in foreign trade, 38 percent, reflecting the globalization of the state’s auto industry. South Carolina is not far behind, due to its foreign auto plants and a new Boeing assembly plant. In short, growth in foreign trade stimulates a state’s economic activity and job growth. At the same time, we should not think that foreign trade is the only route to economic growth and affluence. Some of our richest states have economies based on less-globalized industries, such as higher education, health care, business services and finance. For example, Connecticut, with the highest per capita income of all the states, has only 16 percent of its overall economic activity related to international trade. Paul Brace Clarence Carter Chair in Legal Studies and Professor of Political Science at Hanszen College Is it fair that some states are more dependent on the Federal Government than others? Definitely. Some states receive substantially more than others per capita in federal dollars. Some of this is on social spending, some on infrastructure and federal projects, and some on military installations and/or defense projects. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? Presidential campaigns have been publicly funded. Currently, however, candidates waive public funding because there is so much PAC money available. Should states try and make their economies more or less dependent on international trade? How? States benefit substantially from foreign trade and most actively seek foreign direct investment. States fight fiercely to lure foreign manufacturers (Mercedes in Alabama, BMW in South Carolina, Toyota in Kentucky and Texas, Honda in Ohio and Indiana, Subaru in Indiana, etc.). Foreign trade also provide markets for state exports. Michael Malmfeldt Assistant Professor of Accounting at Shenandoah University Is it fair that some states are more dependent on the Federal Government than others? Who's to say what is fair? I can tell you that I don't believe it is good that some states are more dependent on the federal government than others. With control of the purse strings, comes control. If you show me a state that is more dependent on the federal government, I will show you that same state is more susceptible to being controlled by the federal government. The further you go away from the local level (in the local, state, federal spectrum) in terms of control of your own money, the less correlation you will have with the actions of the elected officials and bureaucrats, and the desires of the citizenry. I think you would have a hard time arguing that. What tips do you have for a person that wishes to increase his/her financial independence? Well, I am a bit of an expert here, but not because of my academic preparation. Unfortunately, my expertise here comes from the "school of hard knocks." My number one piece of personal finance advice is to avoid taking out student loans unless you absolutely have no other way to pay for school, you have an overwhelming desire to go to college, and a concrete plan for paying them back. The bankruptcy code in the United States allows for some room for error in making financial mistakes as a young person or someone who is just bad with their money. However, when you sign on the dotted line for student loans, they will likely follow you to the grave unless they are paid, and they don't sit idly by waiting to be paid, they grow exponentially with time. Take my word for it, education is wonderful and I am an advocate for obtaining as much education as possible, but I wish I had gotten mine without debt. What tips do you have for a person that wishes to reduce his/her job dependency? Should they try to join the “gig” economy? This is actually something that I have been having ongoing discussions about recently, but more from the perspective of job obsolescence because of automation, but I think the solution is the same for the broad question (job independence) and the specific application in my recent thinking (negative effects of automation), and that is entrepreneurship. The only real way to job independence is being your own boss. Some people are able to do this easily on their own, and some go back to school and try to learn how to be an entrepreneur because it is unnatural to them. It just depends on how you learn best and what your individual needs are. This protects you from automation, because you now just have robots working for you instead of humans doing whatever you do in your field. The "gig" economy is one way of going entrepreneur, without going "full entrepreneur" because you are working as an independent contractor, i.e., your own boss. I think it's a nice combination of being your own boss, but still having some of the stability of a job (for instance, you're not finding your own clients with Uber or Lyft so you are probably going to make some money if you spend 8 hours working). However, in the gig economy, most of the potential financial benefits of being your own boss are being monopolized by the owner of whichever big company with which you are contracting. So, anyone who goes the "gig" route is probably never going to get out of "survival mode" and is probably going to have a harder time finding extra money to invest for retirement or adventure in the future. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? It would be incredibly naive to believe that taking this step would make a noticeable difference in the independence of the president from special interests. It's a small drop in what would be a very large bucket. However, every little bit helps, and so, I don't think it would be bad. The key to solving the independence from special interest groups issue is, in my opinion, more transparency. If there were more independent news sources that everyone could rely on to report untainted information, and those news sources had access to more details in all areas of government, but especially financial areas (see Rand Paul's effort to Audit the Fed as an example of possible positive steps here), I think the special interest problems would at least be more solvable in that environment. Right now, I think most people who are paying attention don't believe much of what they hear from either side of the partisan news sources, or if you are as politically jaded as I am, you believe all of the negative that you hear from both sides about the other one, and little of the positive. Should states try and make their economies more or less dependent on international trade? How? One thing that history has taught us repeatedly is that once power is given, it is almost never given up willingly (or even peacefully). That's why people (rightly) make such a big deal about the "peaceful transition of power" between U.S. Presidents. Unfortunately, when we look at the concept of Federalism in the United States and the relationship between the federal government and the state governments, the shifting of power between the states and the federal government has been extremely one-sided with the federal government slowly swallowing power that has even been implicitly reserved to the states by the U.S. Constitution (see police power as a prime example). What that means is, that if your state is currently dependent on the federal government, it is unlikely to become more independent organically. Taking advantage of all available options to become more independent would be advisable for all states, with international trade making up a significant amount of potential future financial growth (and therefore financial independence). If I knew the best way to tap into that potential, I would probably be making a lot more money as a consultant to state governments, or use that as a platform to run for State Governor myself. Michael Federici Chair of the Department of Political Science and International Relations at Middle Tennessee State University Is it fair that some states are more dependent on the Federal Government than others? I don't think that it is a question of fairness as much as the reality of the particular state's budget circumstances and its particular spending/service needs. More prosperous and economically vibrant states that are well managed financially have the luxury of being less dependent on the federal government. Keep in mind, however, that generally speaking all states are heavily dependent on the federal government. For example, states used to have drinking ages that ranged from 18-21, but shortly after the Supreme Court decided South Dakota v. Dole, all states had a 21 year-old drinking age because they didn't want to lose a portion of their federal highway funds. What tips do you have for a person that wishes to increase his/her financial independence? What are some first steps? Financial independence is primarily about two things: income and spending habits. Generally speaking, the more income the more independence, and the greater self-control one exhibits in spending, the greater financial independence. Getting into sound spending and saving/investment habits is the best path to financial independence. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? Public funding of presidential campaigns is impossible in the era of the Supreme Court's rulings in Buckley and Citizens United. Even if it were possible, eliminating the influence of special interest groups from politics is impossible. The objective is to minimize their influence or to ensure that their influence is not contrary to the public good. Central to reaching this point is to elect public officials who have what the Framers' generation called republican virtue, the ability to place the common good above private interest. Cultivating such character traits needs to be part of how communities, including schools and universities, families, churches, civic groups, the media, etc., contribute to the development of young minds and characters. Should states try and make their economies more or less dependent on international trade? How? This is one of the questions that depends on circumstances. In some instances, more international trade is beneficial to a local/state economy and in other circumstances, the opposite may be the case. Part of determining which direction is best for a state to take is its current situation. Increased trade can be a boost for a state economy, but becoming too dependent on one type of trade makes that economy vulnerable to the swings of a particular industry. Diversified trade provides some protection against the fluctuations of particular industries. In some instances, domestic markets can be strong enough to drive and sustain a state economy without much international trade. There is something to be said for a stable economy that avoids wild swings in employment and economic growth. Joseph R. Reisert Harriet S. Wiswell and George C. Wiswell Jr. Associate Professor of American Constitutional Law at Colby College Is it fair that some states are more dependent on the Federal Government than others? I'm not sure that's the right question. The reason we have a federal union of states is to accomplish certain national goals more effectively together than each state could on its own. In general, that means that some states will contribute more to some goals and others more to other goals. Some degree of inequality of contribution is inevitable in a federal system. What I think people object to is that some states regularly contribute more in taxes to the national government than they receive from it. In a way, that is unfair. And you could argue that the authors of the Constitution worried about this sort of inequality, when they provided that direct taxes had to be apportioned among the states in proportion to the population of the states. But we have accepted that unfairness, in order to make things fair in a different way -- trying to improve the lot of the poor and sick with funds raised by taxing the well-off and able (the income tax was originally held unconstitutional as a direct tax that bore unequally on the states; hence the need for the sixteenth amendment to authorize it); federal support for infrastructure and other local projects also contribute to the same problem. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? I don't think taxpayer ("public") funding would materially alter the amount of influence the wealthy and well-organized have on our politics, but only shift it from one place where we can more or less see it and take it into account and move it somewhere else, where we might not be able to see it as clearly. Government policy has the potential to create and destroy huge fortunes, and since everybody knows that, lots of people have huge incentives to steer the ship of state in the direction that would make them rich. The other thing to keep in mind is that we all have a tendency to think of interests we favor as being the "public interest" and interests we oppose as "special interests." (It is worth remembering that the government sector itself is a huge industry, with its own interests, that are no more the "public" interest than the interests of any other industrial sector). But we have elections in order to enable the voters to have some say over which sets of interests get advanced. There are, I think, a very small number of truly common interests that are public goods in the economic sense (things that can only be provided for everyone, if they are provided at all; and that no one can be excluded from) -- for example, political independence and the impartial rule of law which protects persons and property; some environmental goods (think clean air) are also like this. Libertarians dream of a state that would be constitutionally limited to advancing only such interests and prohibited from adopting economic policies that favored some industries at the expense of others. A state that didn't create so many opportunities for economic rent seeking would be less vulnerable to capture by special interests. But it's hard to see much public support at this stage for moving in that direction. Should states try and make their economies more or less dependent on international trade? How? I don't see that it matters where local firms buy and sell their products; if they can find good markets overseas -- great; if they can find success by catering mainly to local markets, that's great too. In general, I'm doubtful that politicians and civil servants are more likely to find good investment and economic development opportunities than investors and entrepreneurs, who are investing their own money. So I don't in general favor governments trying to "steer" economic development or to favor certain industries over others. I think the states (and for that matter, the national government) should limit themselves to making conditions generally favorable for people to do business. Regulations, ideally, should be simple and clear; their operation, predicable. Taxes should be as economically non-distorting as possible. Earnest N. Bracey Professor of Political Science in the College of Southern Nevada Is it fair that some states are more dependent on the Federal Government than others? No, it is not fair that some states, particularly Red States, to be more dependent on the Federal Government, like Kentucky and Mississippi, where their representatives to Congress believe in so-called limited government. These two states, moreover, get more Federal dollars than they give back to the national government -- that is, in terms of taxes and income, etc. Finally, it should be noted that New York provides more money to the national government that Kentucky and Mississippi combined. What tips do you have for a person that wishes to increase his/her financial independence? What are some first steps? Individuals can become financially independent by paying themselves 5% or 10%, every month, from their paychecks, and put this money in an interests bearing bank account. Even if it is a small amount, it could make a difference in the long run, especially if they start this plan early in their work history. If they can find a job in the U.S., after graduating from college, they should try to find a job overseas in another country, where the cost of living is cheaper. Upon returning to the United States, they very well could have saved a sizable amount of money. What tips do you have for a person that wishes to reduce his/her job dependency? Should they try to join the “gig” economy? Individuals can reduce their job dependency if they start their own small businesses. They can, perhaps, do this by finding a niche in the local markets of a particular state. A specialized business, like a new Tech company or a new restaurant could certainly make a positive difference in a person’s life -- that is, if they work hard. But such a business must appeal to the people in a given setting. Should presidential campaigns be publicly funded in order to help ensure the President is as independent as possible from special interests? In a true Democracy, presidential campaigns should be only funded by the people -- that is, the money to run a presidential campaign should not come from Plutocrats/the wealthy, lobbying groups, or special interest groups (i.e., corporations or big businesses), as it undermines our Democracy. Therefore, we-the-people must insist on having limits to the money spent during presidential elections. Additionally, the time period for conducting presidential elections should be limited to six months, or some other time-frame. This would be more democratic, as far as I am concerned. Finally, the conservative Supreme Court ruling, Citizens United should be overturned. Using the first amendment as justification to decide on this issue should have been a non-starter. Essentially, corporations and big businesses are not people! And they should never be allowed to spend an unlimited amount of soft money in presidential elections -- that is, in terms of monetary contributions, to run an election campaign. Should states try and make their economies more or less dependent on international trade? How? It would be foolish for some states to abandon international trade, because in the end, they would suffer financially. Furthermore, many states, like Connecticut does not have a lot of natural resources. Nevertheless, creating Green Energy type of jobs might lessen the blow of a static state economy, and it might create an industry that could take on globalization. Connecticut, for example, could create more Tech jobs, or build/make batteries for the coming onslaught of electric cars and equipment; and they could later export these devices overseas. Aaron Yelowitz Associate Professor of Economics at the University of Kentucky and Associate Director of the Schnatter Institute for the Study of Free Enterprise Is it fair that some states are more dependent on the Federal Government than others? As an economist, I tend to focus on “positive statements” about the way the world actually is, rather than on “normative statements” about the way the world should be. The ability to make sweeping conclusions about dependence on the federal government is more complicated than most people think. We can think about welfare programs with large federal outlays -- for example, the Supplemental Nutritional Assistance Program (SNAP) is fully funded by the federal government -- and the percentage of households participating at the state level. In 2015, 11.3% of households in the U.S. participated in SNAP, with three states -- Oregon, Mississippi, and New Mexico -- having participation rates above 15%, while seven states -- Wyoming, New Hampshire, North Dakota, Utah, Kansas, Colorado, and Montana -- has participation rates below 7.5%. Thus, federal funding tends to flow away from states with low participation and flow to states with high participation. Generally speaking, this is typically related to a state’s income level; for example, Mississippi has high participation in SNAP and is one of the poorest states, while New Hampshire has low participation and is one of the richest states. However, economists also focus on tax expenditures in addition to direct outlays. Tax expenditure is essentially government spending through the tax code; put differently, taxes that are not paid to the federal government because of the way the tax code is organized. For example, some of the largest tax expenditures are for employer provided health insurance and home ownership. Unlike the SNAP example, such tax expenditures tend to favor more affluent states. What tips do you have for a person that wishes to increase his/her financial independence? What are some first steps? For all the gimmicks about financial independence and getting rich, it’s the unspectacular story that matters the most. You shouldn’t buy into “get rich quick.” Rather, “get rich slow.” What I mean by this is that small steps -- like paying down high interest debt such as credit cards and contributing money to tax-preferred accounts like 401(k)s -- allows you to harness the power of compound interest. If a 25-year-old made a one-time contribution of $5,500 to a Roth IRA in 2017 and the returns in the stock market averaged 7% per year, that contribution would swell to more than $82,000 by the time she retired. The first steps on financial independence that I discuss with my undergraduate students are always about paying down debt and saving money in tax-preferred accounts. What tips do you have for a person that wishes to reduce his/her job dependency? Should they try to join the “gig” economy? The biggest hedge against job dependency is to be mobile. To me, this really means two things. First, our economy is extremely dynamic and it’s hard to know what jobs will be “good jobs” in the future. Ten years ago, for example, who would have envisioned the disruption to the taxi industry from Uber and Lyft? Although nothing is certain, a credible literature in economics has demonstrated that the return to additional years of education is quite high -- on the order of 7-10% per additional year. Having more “human capital” is a good hedge against an uncertain labor market, and allows you to more easily transition across jobs and tasks. Second, you should be prepared to literally get up and go. Some of the most prominent economists in the profession have carefully documented that improving your fortunes depends critically on where you live. Some parts of the country -- for example the Appalachian region of the U.S. -- has extremely low mobility, and the people who live there are extremely dependent on a small set of employers in shrinking industries. There are very few barriers to entry for workers to enter the “gig” economy, which would likely put downward pressure on wages or wage growth. Olha Krupa Assistant Professor at Seattle University Is it fair that some states are more dependent on the Federal Government than others? Yes, absolutely. The fact that some states are more dependent than others on Federal Government transfers is perfectly acceptable considering the Federal Government’s central role in correcting fiscal imbalances and equalizing intergovernmental spillovers. Many of the federal transfers correct for the economic variation among the individual states. These differences in multilevel governmental relationships arise from the varied economic performance of individual states, the differences in the socioeconomic profile of their residents, and the Federal infrastructure and capital project priorities in any given year. Figure 1 illustrates total Federal grant outlays to state and local governments over time. Because the Federal government levies and administers federal individual and corporation income taxes, and social security and retirement receipts (these made up over ninety percent of the total Federal receipts in 2016 according to the Office of Management and Budget), it also redistributes these tax dollars vertically from high- to low-income residents. A considerable part of income redistribution occurs with Federal aid to states and then to individuals. By administering and redistributing income and social security taxes at the federal level, the Federal government indirectly raises the revenues for state and local governments. The degree of state dependence on Federal aid varies for the following reasons:

• By means of collecting and redistributing the federal income tax, the Federal government reduces the fiscal disparity among the States. By doing so it alleviates regional economic problems, fosters job creation, and prevents the economic decline in select states.

• Encouraging the programs of special national merit, the Federal government funds priority projects in specific states where these programs are located. These may include infrastructure, highway, airport and other capital improvement projects.

• Supporting federally mandated programs, the Federal government directs more than two-thirds of its transfer payments to states for further distribution to the eligible individuals in those states. These include payments for Medicaid and other welfare programs. Naturally, because the distribution of funds depends on the eligibility criteria of state residents, the states with more eligible residents receive more funds from the Federal government.

• Federal transfers also encourage state governments to carry out management reforms. By imposing controls and conditions on Federal aid, the Federal agencies aim to fund successful, performing programs while reducing the funding to the non-performing ones.

• Lastly, a small portion of Federal transfers compensates state and local governments for benefits provided to nonresidents.

Note that the United States is not alone in employing the unequal distribution of funds to state governments. Many other counties use similar redistributive systems in public finances. Some examples include Canada, Mexico, France, Ukraine, the Baltic States and the Russian Federation. In conclusion, while individual states may receive political benefits associated with public service delivery, the Federal government makes the difficult fiscal choices in order to generate the revenue needed by those states and to ensure the continuity of service. Figure 1: Total Federal Outlays for Grants to State and Local Governments and Medicaid, in 2013 Constant Dollars, Fiscal Years 1980-2015 Source: GAO analysis of OMB data I modified from GAO-12-2016

Methodology

In order to determine the most independent states, WalletHub’s analysts compared the 50 states across five key dimensions: 1) Financial Dependency, 2) Government Dependency, 3) Job-Market Dependency, 4) International-Trade Dependency and 5) Vice Dependency.

We evaluated those dimensions using 32 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the highest level of independence.

We then calculated the total score for each state based on its weighted average across all metrics and used the resulting scores to construct our final ranking.

Financial Dependency – Total Points: 20

• Median Credit Score: Full Weight (~1.67 Points)
• Average Savings-Account Balance: Full Weight (~1.67 Points)
• Share of Households with Rainy-Day & Emergency Funds: Full Weight (~1.67 Points)Note: This metric is based on the Federal Deposit Insurance Corporation’s economic inclusion survey and measures to the percentage of households who saved for unexpected expenses or emergencies in the past 12 months.
• Share of Adults Saving for Their Children’s College Education: Double Weight (~3.33 Points)Note: “Adults” include individuals with financially dependent children.
• Employer-Based Retirement Access & Participation: Full Weight (~1.67 Points)
• Median Debt per Income: Double Weight (~3.33 Points)
• Median Household Income (Adjusted by Cost of Living Index): Full Weight (~1.67 Points)
• Poverty Rate: Full Weight (~1.67 Points)
• Share of “Underwater” Mortgages: Double Weight (~3.33 Points)Note: This metric measures the percentage of homes with mortgages that have negative equity.

Government Dependency – Total Points: 20

• Federal Dependence: Quadruple Weight (~11.43 Points)Note: This metric is based on WalletHub’s “Most & Least Federally Dependent States” ranking.
• Share of Household Receiving Public Assistance & SNAP/Food Stamps: Full Weight (~2.86 Points)Note: “SNAP” refers to the national Supplemental Nutrition Assistance Program.
• Share of Federal, State & Local-Government Employees: Full Weight (~2.86 Points)
• Tax Freedom Day: Full Weight (~2.86 Points)Note: “Tax Freedom Day” refers to the day when the state’s taxpayers have collectively earned enough money to pay their federal, state and local tax bills for the year. This metric measures the number of days since the beginning of the year that the event takes place (sooner indicates greater independence).

Job-Market Dependency – Total Points: 20

• Industry Variety: Full Weight (~4.00 Points)
• Job Growth Rate: Full Weight (~4.00 Points)
• Unemployment Rate: Full Weight (~4.00 Points)
• Underemployment Rate: Full Weight (~4.00 Points)
• Job Creation Index: Full Weight (~4.00 Points)Note: This metric is based on Gallup’s “Job Creation Index” and measures the percentage of workers who reported that their employer is increasing its workforce minus the percentage reporting the opposite.

International-Trade Dependency – Total Points: 20

• Share of Jobs Supported by Exported Goods: Full Weight (~6.67 Points)
• Share of Private-Industry Employment at Foreign-Owned Firms: Full Weight (~6.67 Points)
• Share of State GDP Generated by Exports to Other Countries: Full Weight (~6.67 Points)

Vice Dependency – Total Points: 20

• Share of Adult Drug Users: Full Weight (~1.54 Points)Note: “Drug Users” refer to individuals who reported using illicit drugs in the past month.
• Share of Adult Binge Drinkers: Full Weight (~1.54 Points)
• Share of Adult Daily Smokers: Double Weight (~3.08 Points)
• Share of Adults with Gambling Disorders: Full Weight (~1.54 Points)
• Share of Obese Adults: Double Weight (~3.08 Points)
• Facebook Usage: Full Weight (~1.54 Points)Note: This metric measures only the “real intent” of the population to access Facebook. Real intent was measured using Google AdWords search volumes for the keyword “Facebook” in each state.
• Share of Instagram Users: Full Weight (~1.54 Points)Note: This metric was used as a proxy for the population’s dependency on social media. “Users” refer to the population aged 13 and older.
• Share of Social-Network Users: Full Weight (~1.54 Points)Note: “Users” refer to the population aged 15 and older.
• Share of Online-Video Watchers: Full Weight (~1.54 Points)Note: “Watchers” refer to the population aged 15 and older.
• Share of Smart-Device Users: Full Weight (~1.54 Points)Note: “Users” refer to the population aged 3 and older.
• Median Daily Time Spent Watching TV: Full Weight (~1.54 Points)

 

Sources: Data used to create this ranking were collected from U.S. Census Bureau, Bureau of Labor Statistics, Pitney Bowes, Federal Deposit Insurance Corporation, FINRA Investor Education Foundation, The Pew Charitable Trusts, Council for Community and Economic Research, Zillow.com, Tax Foundation, United Health Foundation, Gallup, International Trade Administration, U.S. Bureau of Economic Analysis, Substance Abuse and Mental Health Services Administration, Centers for Disease Control and Prevention, National Council on Problem Gambling, NapoleonCat, National Telecommunications and Information Administration, Minnesota Population Center, University of Minnesota, TransUnion and WalletHub research.

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