Published April 27, 2018
Who Pays for Whom?
You probably know that the tax package passed by Congress included a big cut in the corporate income tax. Part of the revenue loss was offset by broadening the base of the personal income tax — notably, by limiting federal deductions for state and local taxes. This made political sense because the coalition supporting the tax shift largely consisted of legislators from relatively low-tax states. And it was rationalized as fair because it allowed low-tax states to reduce their indirect subsidies to high-tax states.
The catch is that the net interstate subsidies largely flow from high-tax to low-tax states. No mystery here: low-tax states generally have lower average incomes, and thus their residents benefit disproportionately from the highly progressive nature of federal spending — think Social Security, Medicaid, Affordable Care Act subsidies and assorted safety net programs.
Here, we compare median household income against two rankings of dependence on Uncle Sam’s largesse (government-to-household transfers, and federal-to-state and federal-to-local government transfers) courtesy of WalletHub, a non-partisan, web-based financial advice site. We’ve included just the 10 states on the low and high ends of household income.