Featured Experts

Return on Statehood: How Much Value Every State Gets from the Federal Government

Last Updated: 11/27/2022
Advertising & Editorial Disclosure
By     |  
Featured Experts

As Americans head to the polls — or the mail-in ballot drop boxes — voters will weigh in on their own state's financial health based on who they elect in state, local and federal elections.

To put states' financial health — and the potential impact on residents of those states — into context, MoneyGeek analyzed and ranked states according to their dependence on the federal government. Rankings account for political affiliation, net benefits individuals and organizations in the state receive, state government revenue from federal sources and GDP per capita.

Key Findings:
  • 7 of the 10 states most dependent on the federal government were Republican-voting, with the average red state receiving $1.05 per dollar spent.
  • Twenty-nine states sent more to the federal government than they received, compared to just nine states in 2021.
  • Of the states that sent more than they received, 52% were Democrat-voting and 48% were Republican-voting.
  • New Mexico had the highest return on federal spending of any state ($3.69), and Delaware had the lowest ($0.32).

Federal Dependency Rankings by State

To find the states in the U.S. that were most dependent on the federal government in 2022, MoneyGeek analyzed the return on taxes sent to the federal government and the percent of each state’s revenue provided by the federal government. We also compared states by political affiliation and per capita GDP to learn more about the factors that contribute to federal dependency.

State Federal Dependency Ranking
Rank
State
Political Affiliation
Dependency Score
Return on Tax Dollars
Fed Fund % of State Revenues
GDP (in $M)

1

New Mexico

Blue

100.0

$3.69

32.06%

$122,359

2

West Virginia

Red

89.5

$3.09

34.07%

$96,724

3

Mississippi

Red

75.0

$2.60

32.41%

$138,156

4

Alaska

Red

73.0

$2.41

33.90%

$64,257

5

Kentucky

Red

57.8

$1.89

32.20%

$258,293

6

Vermont

Blue

54.9

$1.50

35.83%

$40,249

7

Montana

Red

50.8

$1.59

32.13%

$64,757

8

Arizona

Red

49.8

$1.71

30.07%

$453,602

9

Maine

Blue

47.2

$1.72

28.27%

$83,514

10

Alabama

Red

46.2

$1.80

26.61%

$275,396

11

Louisiana

Red

44.7

$1.25

33.38%

$281,047

12

Wyoming

Red

38.8

$1.11

31.87%

$48,044

13

District of Columbia

Blue

38.1

$1.38

27.65%

$160,728

14

South Carolina

Red

37.4

$1.71

22.71%

$292,932

15

Oklahoma

Red

34.9

$1.50

24.19%

$242,303

16

South Dakota

Red

34.3

$0.83

32.97%

$67,489

17

Hawaii

Blue

34.2

$1.83

19.19%

$96,979

18

Idaho

Red

33.2

$1.23

26.94%

$108,438

19

North Dakota

Red

28.6

$1.12

25.68%

$74,745

20

Rhode Island

Blue

27.2

$0.77

29.75%

$70,759

21

Indiana

Red

26.6

$0.99

26.39%

$452,422

22

Virginia

Blue

25.1

$1.47

18.93%

$642,755

23

Maryland

Blue

24.9

$1.23

22.07%

$465,635

24

Arkansas

Red

24.8

$0.78

28.17%

$163,779

25

Michigan

Blue

24.4

$0.99

25.06%

$615,408

26

New Hampshire

Blue

23.3

$0.94

25.17%

$104,172

27

Missouri

Red

21.7

$0.85

25.50%

$386,397

28

Oregon

Blue

21.6

$1.01

23.19%

$294,325

29

Pennsylvania

Blue

21.0

$0.92

24.14%

$915,424

30

Connecticut

Blue

17.0

$1.04

20.00%

$317,907

31

North Carolina

Red

16.6

$0.89

21.97%

$723,163

32

Delaware

Blue

15.6

$0.32

29.24%

$86,673

33

Iowa

Red

15.1

$0.97

19.88%

$230,104

34

Tennessee

Red

14.6

$0.78

22.32%

$469,938

35

Texas

Red

12.6

$0.83

20.49%

$2,354,455

36

New York

Blue

11.7

$0.74

21.06%

$2,034,912

37

Nevada

Blue

10.9

$0.90

18.42%

$213,410

38

Florida

Red

10.6

$0.77

20.00%

$1,371,468

39

Georgia

Red

10.3

$0.85

18.77%

$747,535

40

Kansas

Red

9.9

$0.87

18.26%

$209,272

41

Ohio

Red

8.6

$0.62

20.95%

$817,627

42

Minnesota

Blue

8.1

$0.69

19.68%

$442,528

43

Massachusetts

Blue

7.4

$0.54

21.39%

$679,122

44

Wisconsin

Blue

5.5

$0.84

16.09%

$398,850

45

Nebraska

Red

5.4

$0.64

18.81%

$161,260

46

Colorado

Blue

5.0

$0.83

15.93%

$480,828

47

Utah

Red

4.3

$0.79

16.08%

$245,831

48

California

Blue

3.8

$0.65

17.80%

$3,558,512

49

Illinois

Blue

3.2

$0.60

18.08%

$1,024,019

50

Washington

Blue

0.4

$0.63

16.00%

$717,336

51

New Jersey

Blue

0.0

$0.56

16.79%

$737,654

Red States Lead With Federal Dependence

Democratic-leaning blue states tend to be wealthier and pay more to the federal government than they get. In contrast, Republican-leaning red states tend to have less wealth and receive more federal government funds than they pay. In the MoneyGeek rankings, 7 of the 10 most dependent states are considered red states.

Policy choices may partially explain this relationship.

"A really conservative state might choose to tax itself at a lower rate, which means by default, they can give fewer state-funded services," explains Kathy Fallon, human services practice area director at Public Consulting Group. "That can exacerbate the situation."

But a correlation between states' economic health and political affiliation may reflect economic factors beyond those explained by political philosophy.

"If red states pay less in taxes than they receive in benefits, that's because they are generally poorer and program rules are progressive — not because they are 'takers' while blue states are 'donors' in any value-laden sense," says Mark Shepard, assistant professor at the Harvard Kennedy School of Government and faculty research fellow at the National Bureau of Economic Research (NBER).

Higher GDP Equals Less Federal Dependence

MoneyGeek analysis shows that states with higher per capita GDP are less dependent on the federal government.

"Higher-income states produce the majority of the tax dollars that go into the federal government's pocket," Fallon says. Because of the higher income, states and their residents need less support and use fewer federal dollars.

Fallon noted that tax code changes have made wealthy states' contributions more pronounced.

"Before, people who paid large state income taxes would deduct those from their federal tax payments," she says. Now, state tax deductions are capped. "Ironically, it means the wealthier states' populations are paying even more."

Expert Insights on Federal Funding Disparities

  1. Why do some states receive more federal funding than others?
  2. What role does federal funding play in state government finances?
  3. Is the current allocation of funding fair and equitable? Why or why not?
Dr. Nada Eissa
Dr. Nada Eissa

Associate Professor of Public Policy and Economics in the McCourt School of Public Policy, Georgetown University, and Research Associate at the National Bureau of Economic Research (NBER)

Kathy Fallon
Kathy Fallon

Practice Area Director / Human Services, Public Consulting Group

Dr. Aleksandar (Sasha) Tomic
Dr. Aleksandar (Sasha) Tomic

Economist and Program Director of Boston College's MS in Applied Economics Program, Associate Dean, Strategy, Innovation, & Technology, Woods College of Advancing Studies, Boston College

William C. Binning, Ph.D.
William C. Binning, Ph.D.

Adjunct Professor of Political Science & Gerontology at Youngstown State University

Rosalyn Cooperman
Rosalyn Cooperman

Professor of Political Science at the University of Mary Washington

Joseph M. Knippenberg
Joseph M. Knippenberg

Professor of Politics at Oglethorpe University

Take Action in Your State

Taxes may be one of life's only two certainties — along with death — according to writing attributed to Benjamin Franklin. But how much you pay in taxes and what you get for your tax dollars can vary greatly depending on where you live.

Suppose you're in a state that provides net contributions to the federal government and, therefore, to other states. In that case, you may consider whether your policy priorities are reflected in how the federal government spends and distributes that contribution.

If your state receives more than it contributes, you might examine the role the federal government plays in the day-to-day life of your state. Educate yourself, decide how you feel about how your state budgets and spends money and show your approval or disapproval at the polls when you vote. No matter how divided the nation feels politically, states remain interconnected economically, bound to each other through tax contributions and receipts. Participating in the process and voting ensures that your voice is heard at the state and national level.

Methodology

When evaluating the states most dependent on the federal government in 2022, MoneyGeek created an overall score focused on two key metrics: return on taxes sent to the federal government and the percent of each state’s revenue provided by the federal government. This final overall score was converted to a 100-point scale.

To determine the return on taxes sent to the federal government, MoneyGeek utilized reporting by the Internal Revenue Service (IRS) to identify the amount of taxes paid by the residents and businesses of each state for individual income tax, business income tax, estate and gift taxes, unemployment insurance taxes and excise taxes. MoneyGeek then identified data from the Treasury Department on payments from the federal government to individuals and organizations within each state and calculated the monetary benefit provided by the federal government to each state relative to the amount of taxes provided by each state (Medicare payments were removed from this calculation as this information was consolidated to a handful of states). This metric was given a double weighting and converted to a 100-point scale for inclusion in the final score.

We defined each state as being Republican or Democrat-led based on its voting history in the past five presidential elections. States where the Democratic candidate won three out of the five elections were labeled as blue, and states where the republican candidate won three out of the five elections were labeled as red.

The percentage of each state’s revenue provided by the federal government was calculated using information on each state’s revenue sources collected by the U.S. Census. This metric was given a full weighting and converted to a 100-point scale for inclusion in the final score.

About the Author


expert-profile

Deb Gordon is author of The Health Care Consumer’s Manifesto (Praeger 2020), a book about shopping for health care, based on consumer research she conducted as a senior fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government between 2017 and 2019. Her research and writing have been published in JAMA Network Open, the Harvard Business Review blog, USA Today, RealClear Politics, TheHill, and Managed Care Magazine. Deb previously held health care executive roles in health insurance and health care technology services. Deb is an Aspen Institute Health Innovators Fellow, and an Eisenhower Fellow, for which she traveled to Australia, New Zealand, and Singapore to explore the role of consumers in high-performing health systems. She was a 2011 Boston Business Journal 40-under-40 honoree, and a volunteer in MIT’s Delta V start-up accelerator, the Fierce Healthcare Innovation Awards, and in various mentorship programs. She earned a BA in bioethics from Brown University, and an MBA with distinction from Harvard Business School.


sources