Friday, July 25, 2008

The Givers and Takers Among the States

The Wall Street Journal reports on another casualty from that the weakening U.S. economy: state finances. According to the article "states are being slammed by tax shortfalls" and observers "expect it to get worse before it gets better." Amidst this gloomy news--especially for tenure track professors at a state university like me--some states should take solace in the fact that there are federal fiscal transfers from the U.S. government that can serve to offset cyclical economic pressures. Note, though, that I say some states since one state's gain is another state's loss in the form of federal taxes. Where the states fall is tracked by The Tax Foundation in Washington, D.C. They have a series called "deficit neutral federal expenditures per dollar of federal taxes" that I have listed in the figure below (click to enlarge).
The numbers for the District of Columbia are striking, but not really surprising. What is surprising is that the heart of the Rustbelt states--Michigan, Indiana, and Ohio--were net givers. Michigan, for example, got 80 cents back for every dollar it paid in federal taxes. One would think those states suffering the most economically would be getting the most federal support.

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