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Why Does New Jersey Give More Than It Gets?

Jun 4, 2012 • Behavioral Economics, Economic History, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Uncategorized • 185 Views    No Comments

I never knew that my home state, New Jersey, might be at the top of the list that gives and at the bottom of the list that gets federal dollars.

Receiving 55 cents for every dollar we paid in taxes, for FY (fiscal year) 2004, New Jersey’s getting to giving ratio was .55. The reason? As a high income state, New Jersey has a high federal tax bill. The bill is so high that proportionally, it gets a lot less back from the federal government than it contributes.  Other states that receive much less in spending than they have given in taxes are Connecticut and New Hampshire.

As for the states that have gotten much more federal funds than they pay in taxes, New Mexico and Alaska have been at the top of the list. During FY 2004, the ratio for New Mexico was 2 to 1. For every $2 they received they sent $1 in taxes.

Isn’t it interesting that no one in New Jersey complains about New Mexico?

Our bottom line? Fiscal union is tough to achieve. Just look back to our Articles of Confederation, the Revolutionary War debt, and Virginia’s fury that its money would be used to pay what Massachusetts owed. It also takes us to why Germany resists paying Greece’s bills and the challenges facing a European fiscal union.

Please note that although the best numbers I could access are from 2004, the issues are the same. Higher income states will pay more to the federal government and probably get less. And yet, our fiscal unity remains solid.

This report from the Tax Foundation has a lot more information about geographical redistribution of federal dollars and this NY Times Economix report summarizes it. For additional ideas about redistribution, you might want to look at this CS Monitor article.

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