From WalletHub:
With the tax filing deadline drawing near but some states receiving far more in federal aid than they pay in taxes, the personal-finance website WalletHub today released updated rankings for 2023’s Most & Least Federally Dependent States, as well as expert commentary.
This report illustrates the extent to which states are independent economically. In order to identify which states most and least depend on federal support, WalletHub compared the 50 states across three key metrics: return on taxes paid to the federal government; federal funding as a share of state revenue; and share of federal jobs.
| Most Federally Dependent | Least Federally Dependent |
| 1. Alaska | 41. Nevada |
| 2. West Virginia | 42. Delaware |
| 3. Mississippi | 43. Iowa |
| 4. Kentucky | 44. Massachusetts |
| 5. New Mexico | 45. California |
| 6. Wyoming | 46. Illinois |
| 7. South Carolina | 47. Kansas |
| 8. Arizona | 48. Utah |
| 9. Montana | 49. Washington |
| 10. Louisiana | 50. New Jersey |
Key Stats
- With an average dependency rank of 20.32, Red States are altogether more reliant on federal funding than Blue States, which rank 30.68 on average. (The lower the rank, the more dependent the state is.)
- There is a 57.2 percent correlation between a state’s federal dependency and its per-capita GDP. That means the least wealthy states tend to receive the most federal support.
- Illinois is the fifth least federally dependent state, which helps explain the fact that it has the highest tax rates in the nation. On the flip side, Alaska is the most federally dependent state and has the lowest tax rates.
To view the full report and your state’s rank, please visit:
https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700
Expert Commentary
Should federal resources be allocated to states according to how much they pay in federal taxes, or should some states subsidize others?
“The idea of the federal union (United States) is based on federal resources being allocated to states and local governments irrespective of the tax revenues their residents provide to the federal government. We observe the abysmal results for some member states in the EU and especially the euro members. All states use the federal currency which must include both a monetary and a fiscal union. If there is a common monetary policy it should hold true for a fiscal policy as well.”
Dimitri Papadimitriou – President of the Levy Economics Institute; Professor, Bard College
“This goes too far in allowing the autonomy of states to overshadow serving the common good of all under a federative system. In addition, a significant proportion of states’ spending may relate to providing public goods and services which offer certain entitlements in those states. Holding every state as an independent economic entity may compromise the good of all, regardless of their geographic location. One essential feature of the system is the free movement of labor and capital. This possible change, with some reluctance, will ultimately bring the necessary changes. The system’s strength requires a different understanding of what should be considered as the benefit of all, and this certainly is not or should not be based on the economic power of each state.”
Jamshid Damooei, Ph.D. – Professor; Director, Economics Program; Executive Director, Center for Economics of Social Issues (CESI), California Lutheran University
What is the fairest way to redistribute federal resources to the states?
“We should start with what constitutes an acceptable meaning of fairness when the redistribution of financial resources toward meeting the interest of people in a society is concerted. It is the needs of people rather than their contribution. A society should be viewed as an interrelated community in constant change. Paying for others does not just serve the recipients but the payers too. We should use the same thinking between the people in one nation and the entire family of nations. The answer to this question is simple. Serving the common good of all means setting a safety net and not allowing anyone to fall below. This will inevitably bring a higher level of commitment at the federal level. The other side of this plan is enhancing the ability of the states to serve their own interest. The federal government is primarily responsible for creating an investment plan to increase human resource capacity, and the dividend will benefit all. An excellent example of this is eradicating poverty, homelessness, universal healthcare, and free education.”
Jamshid Damooei, Ph.D. – Professor; Director, Economics Program; Executive Director, Center for Economics of Social Issues (CESI), California Lutheran University
“The goal is not strictly fairness to people within a state, but to assist in the feeding, education, housing, and healthcare of poorer people, and those who cannot work.”
Michael J. Hicks, Ph.D. – Distinguished Professor; Director, Center for Business and Economic Research, Ball State University
Which programs should be a state/local responsibility, and which should be a federal responsibility?
“The highest proportion of states’ spending is on education and healthcare. There are significant differences among the states. Both areas are vital for the health and well-being of every person in the United States and provide the essential segments of investing in creating human capital. However, federal responsibilities come with the possibility of additional allocation of resources. We need to make some reasonable standards, such as federal standards for health benefits or educational advancement. The other important issue here is the role of the private sector as for-profit or nonprofit. The federal government can strengthen its capacity to serve a more significant segment of the community. The most promising element of a positive change in the future can and should be restructuring the provision of public goods and services to universal assistance instead of using deficient means-tested methods. This rethinking will inevitably change our existing tax provision and its increase by expecting a higher share from large corporations and the rich.”
Jamshid Damooei, Ph.D. – Professor; Director, Economics Program; Executive Director, Center for Economics of Social Issues (CESI), California Lutheran University
“States are responsible for most local public services. The Federal government often provides benefits when the individual receiving them is highly mobile. So, for example, if states were to set VA disability payment levels, some share of disabled veterans would relocate to places with larger subsidies.”
Michael J. Hicks, Ph.D. – Distinguished Professor; Director, Center for Business and Economic Research, Ball State University