Friday, September 11, 2009

Hey Missouri & Kansas! You're welcome.

It's well known that California is having some serious budget problems right now. Many conservatives are almost gleeful about the situation and point to California as an example of how liberal policies inevitably lead to out of control government spending, poor economic growth, and practically the downfall of civilization as we know it. However, being the geek that I am, and wanting to apply some of what I'm learning in a governmental/non-profit accounting class I'm taking, I started digging into the California budget and looking at where our tax dollars are going. The truth is California's budget crisis is a result of California's robust economy and the massive extent to which our tax dollars go to subsidize other, poorer (mostly politically red) states.

I didn't strictly limit myself to looking at state revenues/spending. I also looked at taxes Californians pay at the federal level and where that money goes. There's a helpful data sheet published by the Tax Foundation at this link ( that breaks down by state how much each state pays in federal taxes and how much of that money each state gets back. Turns out, in 2005, the latest year for which data was available, California contributed ~$50 billion more in federal taxes than it received in federal spending. This number fluctuated considerably in the time period covered, but for the last two decades California has paid considerably more than it has received almost every year. In the last decade in particular, $50 billion is a pretty good estimate for the annual average that California contributes in excess of what it receives.

Now some people might think that most states are like that. After all, DC is a money pit, right? Well, DC may waste a lot of money. But the fact is DC wastes money primarily by spending it somewhere, and usually that somewhere is in one of the states. Turns out a lot of states receive substantially more in government spending than they contribute. And as can plainly be seen here, the majority of the states being subsidized by California and other net contributors are demographically conservative, Republican-leaning states--including my native state of Missouri and its neighbor containing much of the Kansas City metro area, Kansas. In 2005, Missouri was a net drain on the system to the tune of ~$13 billion and Kansas to the tune of ~$3 billion. And yet, even with billions of dollars in federal welfare, these conservative states still can't match the per capita economic productivity of states like NY, Massachusetts, California, etc.

If California didn't have to support the welfare states, and instead had that $50 billion to spend on our own state government, we would actually have a state surplus of over $30 billion. We could eliminate the sales tax altogether, or almost do away with the income tax. Or we could do what has made us so rich to begin with, continue to invest in better schools and infrastructure.

However, I'm not advocating California stop supporting the welfare states. The fact is, thanks to massive public investment in education and infrastructure, Californians are far more economically productive (i.e. rich) than citizens of more conservative states. And the culture that keeps states like Louisiana and Mississippi so poor is unlikely to change anytime soon. So, like it or not, we probably need to keep supporting the poorer state, or else their situation will get unimaginably worse.

What should be more widely publicized, however, is the fact that conservatives states are overwhelmingly welfare states. Their economic policies are not working. They depend on more liberal states like California to maintain their standard of living. And it is the states with more liberal policies that are far more economically productive.


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