Stateline Story

Richer States Get Less From Uncle Sam

The federal tax burden falls most heavily on affluent Connecticut, while the state of New Mexico, home of the White Sands Missile Range, the Los Alamos National Laboratory and the highest poverty rate in the nation, gets the most federal dollars back, studies of the federal budget's impact on states show.

Although New Mexico saw the highest return-- more than $2 for every tax dollar sent to Washington-- it also had the highest poverty rate in 2000 at 18.7 percent, according to the Census bureau. The government defines poverty as pre-tax income below $17,603 in 2000 for a family of four.

Most northeastern states such as Connecticut, which generally have higher incomes, pay more taxes to the federal government than they receive in benefits. Connecticut got back about 62 cents per tax dollar in 2000, the most recent year for which figures are available.

New Hampshire, Illinois, and Minnesota got less than 85 cents back for their tax dollar in 2000, while North Dakota, Mississippi, and Alaska got better returns, of at least $1.68.

"All states aren't treated equally under the federal system," said Scott Moody, senior economist for the Tax Foundation , an organization that ranks which states pay more than their "fair share" of federal taxes.

State officials dread explaining why their state bears more of the federal tax burden than other states, and the figure is important because 26 percent of state budgets, on average, comes from the federal government.

"People at the state level like to know their relationship to the federal government. What they really want to know is, what they can do about it," Moody said.

The presence of military bases or federal offices can boost a state's ranking in federal dollars returned. An older population also can sway the amount of federal dollars returned because elderly rely more on federal programs such as Social Security and Medicare.

One reason for New England's generally low returns is that its share of Defense Department spending fell from 8.3 percent in 1990 to 5.2 percent in 2000, said Matt Kane, policy analyst for budget issues for the Northeast Midwest Institute.

The institute publishes an annual study on the return of the federal tax dollar to states.

Herman "Dutch" Leonard, a professor at Harvard's Kennedy School of Government (whose annual study on "The Federal Budget and the States," is due this spring), said his research will confirm that northeast states lag as recipients of federal spending. However, an analysis of 2001-02 data might show that New York increased its ratio of federal dollars returned because of expenditures related to the Sept. 11 terrorist attacks, he said.

Rankings of returns on federal tax dollars are just a snapshot of trends that generally take decades to change, researchers said.

"So unless you plan to get a military base anytime soon, there's not much to be done," said the Tax Foundation's Moody, whose rankings are based on both Census data about federal expenditures and his organization's analysis of how the tax burden is allocated state-by-state.

The recession of 2001, which pounded corporate income tax receipts, potentially could reshuffle a few states' rankings, Moody said.

Maryland and Virginia routinely get high rankings in studies because of the federal spillover from the District of Columbia.

Midwest states such as South Dakota and North Dakota get a high rate of federal money returned because the federal government owns so much land and pays for roads, park rangers, and police there, Moody said.

Wisconsin gets back about 84 cents for every dollar given to Uncle Sam, and Illinois sees about 75 cents returned because both states lack many defense contracts, military installations or extensive federal lands.

University of Illinois economist J. Fred Giertz said there's little reason to be concerned about Illinois' ranking as a donor state even though it probably applies an economic brake.

"There's not a whole lot we can do to change that," Giertz said. "Illinois pays a relatively high tax because we're a high-income state, so it's a function of our progressive tax laws. That's actually a good thing."

States with lower incomes generally get more dollars back from the federal government, and if states expected a dollar-for-dollar return, "there wouldn't be any reason for a federal government," Giertz said.