Jon Margolis is a VTDigger political columnist.
Vermonters send a lot of money to Washington, more than $5.88 billion in federal taxes in fiscal year 2018.
Not that all the money literally goes to and stays in “Washington.” It goes to the federal government, which spends it all over the world: soldiers in Afghanistan, park rangers in Wyoming, highways in Iowa, sick and old people in all 50 States.
Still, that’s a lot of money from Vermonters, raising the question of what they get in return.
More.
Like most states, Vermont has a positive “balance of payments” relationship with the federal government, which spent $8.048 billion in the state in FY 2018.
That’s a positive balance of $2.16 billion. For every dollar Vermonters sent to Washington, they got back $1.37. Calculated per capita, each Vermonter paid $9,402 in federal taxes. The federal government spent $12,856 per Vermonter in the state.
All this from a report issued earlier this year by the Rockefeller Institute of Government, which found that the taxpayers of 42 states get back more in grants, contracts, wages and direct payments to citizens than they pay in federal taxes.
As a reasonably affluent state (23rd highest median household income in 2018), Vermont does not have one of the highest positive “balance of payments” in the survey. Fifteen states have a more favorable aggregate balance and 11 show a higher per capita balance.
Only eight states have a negative balance, and New York’s is far and away the most negative. New York taxpayers sent $21.986 billion more to the federal government in FY 2018 than the feds spent in their state.
New Jersey’s aggregate imbalance -— $11.5 billion — was a far distant second, followed by Massachusetts (almost $9.1 billion) and Connecticut (slightly more than $8 billion). Because New York has so many more people than those other three states, its per capita imbalance ($1,125) was less than New Jersey’s ($1,293) Massachusetts’ ($1,315) or Connecticut’s ($2,224).
The other states with a negative balance of payments were Minnesota, Nebraska, Colorado and Utah. All four states are reasonably affluent, meaning their people pay a sizable chunk in taxes, and those people are less likely to be old than most Americans, so fewer of them get Social Security and Medicare.
The state that came closest to breaking even was Illinois, with a net positive balance of $344 million ($27 per capita) but a return on its dollar of exactly a dollar.
Named after former Gov. Nelson A. Rockefeller, based in Albany and affiliated with the State University of New York, the Rockefeller Institute is New York-oriented. The report – “Giving or Getting” – was partly financed by New York’s Division of the Budget, and its director, Robert F. Mujica Jr., wrote a letter attached to the report in which he noted that “New York State tax dollars are being distributed to other states even after you adjust for any Federal spending in New York.”
But aside from noting that New York’s “negative balance of payments for 2018 … ranks it the worst in the nation,” the report itself is remarkably value-free. One of its co-authors, the Rockefeller Institute’s senior economist Laura Schultz, said the report’s goal was “to give the background … to give the data,” leaving it to others to do the “interpreting for policy.”
One reasonable interpretation is that the results prove that the federal tax and spending system is working as it should: the rich pay more; the poor benefit more.
“At the end of the day we have a progressive tax structure,” said economist Schultz.
At least a progressive federal income tax structure. The second biggest contributor to the federal treasury comes in the form of “social insurance” (payroll) taxes, which are not progressive. Vermont actually sent Washington more in payroll taxes ($4.33 billion) than in income taxes ($4.17 billion).
The system as a whole, though, is progressive. New York and its northeastern neighbors with the biggest negative balances are among the richest states. Toward the bottom of the list are poorer states such as Alabama and Tennessee.
In that context, Vermont seems to be a net beneficiary not because it is poor (though it is poorer than its three wealthy neighbors) but because it is old (median age 42.8). That adds up to a lot of federal spending for Social Security and Medicare. New Hampshire is as old, but much richer.
There are exceptions. The two states with the most positive balances were Virginia (almost $97 billion) and Maryland (almost $48 billion). They are wealthy states, but both chock-full of federal workers, many of them well-paid.
The report is applicable to one current policy debate, the one triggered when Senate Majority Leader Mitch McConnell, R-Ky., said he opposed sending more federal money to states because it would be a “blue-state bailout” for Democratic states that he said had been profligate in their spending.
The Rockefeller Institute report not only showed that it was “blue states” that contributed more to the federal coffers than they received, but that the state that was third most dependent on federal largesse was McConnell’s own Kentucky.
That does not prove that the blue (or for that matter the red) states have not been profligate. The report deals only with each state’s federal taxes, not how they raised and spent their own income, sales, property and other taxes. It does demonstrate that Republican states are more dependent on the federal government than Democratic states.
The report calls its conclusions “preliminary” because they don’t fully reflect the impact of the 2017 tax law, which reduced the tax rates paid by all those wealthy New Yorkers. But it also did away with the deductibility of their state and local taxes and shifted some of the tax burden from corporations to individuals.
Expect the next report to continue to show that the federal government helps poor states more than rich ones. That’s how the system was designed.
