Winners and losers in the federal money game

Great Debates
1

This thread contains an iteration of a common exchange in political debates. It could be summarized as follows:

Democrat: Let’s pass liberal policies that will make the economy better.

Republican: Look at liberal states like California. They’ve got high taxes and high spending and their economy’s in the crapper.

Democrat: Yeah, but that’s just because the federal government takes money away from liberal states and gives it to conservative states.

Here is some actual data on which states get more than they give from the federal government and by how much, relative to the size of their economies. Broadly it would seem that red states are more likely to be winners and blue states are more likely to be losers. There are exceptions, however. Liberals’ least favorite state, Texas, is a net loser. The one state with the greatest inflow of federal money is New Mexico, which is now a blue state.

I think that two factors can explain the data. The first is size. States with large populations have high person-to-Senator ratios. Assuming that every Senator can get roughly the same amount of federal pork, Senators in large states would have less pork per person (ppp?) than Senators in small states. The nine most populous states are all losers: CA, TX, NY, FL, IL, GA, PA, OH, and MI. The five smallest states are all winners: WY, VT, ND, AK, and SD. (Deleware is a notable exception to this trend.)

The other factor is wealth. The five states that win the most from the federal government are all among the poorest by any measure: NM, MS, WV, MT, and AL. The five states that lose the most to the federal government are all wealthy: DE, MN, NJ, IL, and CT. Of course liberals generally favor high taxes on the wealthy and federal poverty for the poor, so this can hardly be viewed as a plot against liberals.

To sum up, there little basis for the claim that liberal would-be paradises would actually be paradises if not for the federal government’s grabbing their money. The state with the biggest budget woes, California, is a loser, but only by a very slim margin.

2

I think you have the claim backwards.

It’s not that liberal-run states would be better if not for the federal government taking their money. It’s that conservative states would be a lot worse if they didn’t get a net transfer from the federal government.

Or, how I normally see it stated is that it’s a bit hypocritical for AL to tout their small-government success without acknowledging that a huge part of their economy is federal military spending (to use one example).

ETA: I do agree that the argument presented in the OP is unpersuasive, primarily because state’s very so wildly. CA is liberal and has a large deficit. VT is even more liberal and has a surplus.

3

First, California has a projected budget surplus next year, San Jose has the best economy in the country (which I know is true from the damn traffic,) housing prices are increasing by double digits, with multiple offers back again, and the unemployment rate, while high, is falling rapidly. So the rumors of our demise are greatly exaggerated.
But on point, the conversation was that conservative governors who are complaining about big federal government and the pain of taxes are hypocrites because federal spending is a big net benefit for their states. It is probably true that if federal spending were equalized, there would be more federal jobs in blue states, and the economy would thus improve - but I’ve never heard anyone blaming federal spending for the problem.

4

This is a factor, one which I have noticed myself. But the cause of the federal imbalance does not influence the economical-thrift argument. The classical argument is that red states budgets are in a better shape because they are better at managing their money (with the implication that conservative policies are better for the economy).

Whether the actual cause is a natural imbalance of pork due to population differences, or because they receive daily meteorites of gold (or less frivolously, have better natural resources,) is immaterial.

The poverty question is an interesting one, one which I also have noted. I have looked for data as to how much welfare for the poor is a factor in the balances of the state outlays: do you have any data on this?

I suspect the biggest factor may be the aging population in the red states. The blue states are much more attractive to young people, who of course do not draw Social Security.

But the whole point of the argument is not whining about political maltreatment or unfairness, it’s debunking the idea that red state’s budgets are doing fine entirely because they’re rugged individualist conservatives.

5

California’s economy is in the crapper? It ranks twelfth on GDP-per-capita and tenth on average income. Seems pretty good to me.

6

“Let me reinterpret your argument in the worse possible way then show you why my reinterpretation of your argument is wrong.”

7

49th in unemployment though.

8

Urban centers tend to have lotsa liberals (at least, places with high population densities tend to have a dearth of rugged individualists, except for the really stupid ones and that one AFCAn) and lotsa poor people (at least compared to exurbs).

That’s probably key.

9

That’s left over from when a Republican was governor. Now we’ve got close to, if not the highest, job growth in the country.

10

One issue with these sorts of analyses is corporate taxes. A lot of economic activity in the flyover states is done by companies that are paying their federal taxes in different states. I presume that’s why Delaware is way at the top, with all the companies that get their mail there. Minnesota also has some huge companies that pay their taxes there but have operations all over the place.