Posted by: John S Kiernan

One big point of difference among state economies is the tax burden of the average citizen. This number varies greatly. But what are the reasons behind why some states tax their residents more or less?

If a state can afford not to tax its residents at high rates, there are multiple explanations. One is that their economic policies are sound and the state economy is doing well. But another is that the state gets disproportionately more funding from the federal government than states with harsher tax codes.

Americans have looked at federal assistance programs with growing scrutiny. According to a 2018 Rasmussen report, 61% of American adults think there are too many people receiving government financial aid. On the other hand, only 9% think not enough people are receiving funds. Regardless of overall trends, though, it is true that some states receive a far higher return on their federal income-tax contributions than others.

Just how big is this difference? And to what extent does it change 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, commentary from a panel of experts, and a detailed explanation of our 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="https://ift.tt/2G87fTu>

 

Most Federally Dependent States

Rank (1 = Most Dependent)	State	Total Score	‘State Residents’ Dependency’ Rank	‘State Government’s Dependency’ Rank
1	New Mexico	85.81	2	3
2	Mississippi	81.46	7	1
3	Kentucky	78.76	6	5
4	West Virginia	72.34	4	12
5	Alabama	71.65	5	11
6	Arizona	67.03	11	4
7	Alaska	64.30	8	9
8	Montana	63.88	15	6
9	South Carolina	61.31	3	33
10	Indiana	59.74	9	14
11	Louisiana	58.11	27	2
12	Tennessee	52.21	21	7
13	Maine	50.89	12	19
14	Wyoming	50.39	22	8
15	North Dakota	46.99	1	47
16	Vermont	46.46	18	17
17	Oklahoma	44.24	19	21
18	Missouri	43.76	36	10
19	Oregon	43.44	25	15
20	Pennsylvania	42.94	17	28
21	Maryland	41.38	14	37
22	Arkansas	40.78	40	13
23	Idaho	40.69	20	27
24	South Dakota	39.94	24	20
25	Florida	37.96	26	24
26	Georgia	37.58	32	18
27	Michigan	37.33	28	23
28	Ohio	35.34	46	16
29	Texas	34.27	42	25
30	Rhode Island	33.88	39	26
31	New York	33.05	45	22
32	New Hampshire	31.58	38	30
33	Iowa	31.21	31	31
34	Nevada	31.14	30	32
35	California	30.57	43	29
36	Wisconsin	29.57	16	45
37	North Carolina	29.46	33	34
38	Colorado	28.94	34	35
39	Washington	27.88	37	38
40	Hawaii	26.93	10	49
41	Connecticut	26.67	23	42
42	Nebraska	25.45	44	36
43	Virginia	20.76	13	50
44	Massachusetts	20.64	47	39
45	Minnesota	20.12	34	44
46	Illinois	19.92	48	40
47	Utah	18.56	29	46
48	New Jersey	17.67	49	41
49	Delaware	14.44	50	43
50	Kansas	10.70	41	48

 

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="https://ift.tt/2G87fTu>

 

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="https://ift.tt/2G87fTu>

Ask The Experts: Making Sense of Funding Disparities

For further clarity on the problems contributing to federal-funding disparities, we talked to a panel of economics and public policy experts. Click on the experts’ profiles to read their bios and responses to the following key questions:

1. Should Federal resources be allocated to states according to how much they pay in federal taxes or should some states subsidize others?
2. What programs should be a state/local responsibility and what should be a federal responsibility?
3. What is the fairest way to redistribute federal resources back to the states?

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• Mark J. McKenzie Ph.D. – Associate Professor of Political Science, Texas Tech University
• Dewey Clayton Professor, University of Louisville
• Susan Pace Hamill Professor of Law and Honors Professor, Hugh F. Culverhouse Jr. School of Law, University of Alabama
• Dr. Mohamed Abualhaija Associate Professor of Accounting, Managerial Finance Program Coordinator. Park University, School of Business
• Jaclyn J. Kettler Assistant Professor, Boise State University

Methodology

In order to determine the most and least federally dependent states, WalletHub compared the 50 states across two key dimensions, “State Residents’ Dependency” and “State Government’s Dependency.”

We evaluated those dimensions using three 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 federal dependency.

We then determined each state’s weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order our sample.

State Residents’ Dependency – Total Points: 50

• Return on Taxes Paid to the Federal Government: Triple Weight (~37.50 Points)Note: This metric was calculated by dividing federal funding in U.S. dollars by IRS collections in U.S. dollars.
• Share of Federal Jobs: Full Weight (~12.50 Points)

State Government’s Dependency – Total Points: 50

• Federal Funding as a Share of State Revenue: Full Weight (~50.00 Points)Note: This metric reflects the proportion of state revenue that comes from the federal government in the form of intergovernmental aid.

 

The following metrics were included in the infographic above 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”
• “Other Financial Assistance” divided by “IRS Collections”

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 Sources: Data used to create this ranking were collected from the Internal Revenue Service, U.S. Census Bureau, USAspending.gov and Bureau of Labor Statistics. Unless noted otherwise, the statistics underlying this report are from 2016 and 2017.

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