States, Federal money, and freedom

Here’s an interesting exercise for those who care about personal liberty, constitutional rights and freedoms and privileges, etc.

First, Wallethub has just released a very interesting study titled ‘States Most & Least Dependent on the Federal Government‘.  It examines how much each state contributes (via taxation) to the Federal government, how much it gets back in various subsidies, grants, etc., and calculates how dependent that state is on the central government for its fiscal health and survival.  It shows clearly that many states with very low or non-existent personal taxes are more dependent on Federal funds to make up their budgetary shortfall – not necessarily a desirable thing, as it means they’re much less capable of resisting pressure from the Feds to take certain actions, even if their people don’t want it.

Second, we’ve looked before at the Mercatus Center’s annual ranking of ‘Freedom in the 50 States‘.  I personally rate this a very important assessment of whether or not a state is a good place to live.  One reason I was willing to move to Tennessee with my wife was that it was solidly ranked among the top or ‘most free’ states in the Union.

However, today I decided to compare the degree of freedom of a few states with their financial dependency on the central government.  Surprise, surprise!  Many of the ‘most free’ states are also among the most dependent on the Federal government, precisely because their higher level of freedom includes minimal taxation on their residents.  To make up for that, they accept greater subsidies from the Feds – and therefore expose themselves to much greater pressure to conform to Federal government policies and politics.  Similarly, some of the ‘less free’ states are actually among the least dependent on the Federal government, because they tax their citizens more heavily, thereby lessening their exposure to financial – and hence political – pressure from the central government.

It’s an interesting conundrum.  I guess it’s yet another example of the old proverb that “You can’t have your cake and eat it”.  Want more freedom?  Be more dependent on subsidies.  Want greater financial independence?  Accept a higher local tax burden, with its concomitant reduction in personal freedom.

What say you, readers?  Any thoughts on the matter?  Is it better to accept higher local taxation in order to be less exposed to political pressure from Big Brother?  Or is it better to keep local taxes to a minimum, which means either cutting back on the role, functions and size of state and local governments, or accepting Federal funding to maintain them?



  1. Montana, where I live, doesn't do well on federal dependency. One thing not taken in to account is the large Indian reservation population. Those people are almost 100% dependent on DC and have nothing positive to show for it. I'd be curious to see how the state would rank without that group dragging it down. You'll note that other rural states with large reservation populations such as Arizona, New Mexico, or South Dakota are also poor performers.

  2. Hey Peter;

    WHen I joined the Army in 1985, I was stationed to the peoples republic of mass for AIT. Well in Georgia, the drinking age was 18, well in MASS it is 21. That really bit the big one. I liked the occasional beer, Stroh's I believe. Well here I was old enough to enlist and die for my country but I couldn't drink alcohol. I had some issues with that. Well anyway I found out from some of the other G.I's that Vermont's drinking age was 18. So I and others would drive to Brattleboro in Vermont to get beer and bring it back to Ft Devens. Well the Feds were putting a lot of pressure on Vermont to raise their drinking age or lose some highway money. Well Vermont more than made up for it in liquor tax from all the people coming in there from the other states so they politely told the FEDS to pound sand.

  3. Larry Correia, author of Monster Hunter International had a good rant about these statistics on his Facebook page yesterday. Cliff notes version, how many of those tax dollars go to support military bases, depots etc? According to him that should be considered as payment for services rendered and instead it gets lumped into welfare payments. I'll see if I can link it here in a bit.

  4. I may be ignorant here, but I think the issue is the use of percentages. If a state provides very little to the fed, any monies coming from the fed will look large as a percentage. I would like to see the actual dollars before I agree with your premise.

  5. There are also Federal mandates. For example, how much of that state's budget is from Medicaid?
    Florida has a large amount of Federal dollars, but much of that is due to the fact that 32% of state spending is Medicaid dollars.

    One reason for that is the large number of hospital visits that are caused by EMTALA's requirement that hospitals treat anyone arriving at the ER, regardless of the ability to pay. Since there is a large illegal immigrant population here, the ERs are overloaded with people looking for free medical care.
    Then there are the military bases, the Space center, and other Federal projects.

  6. I think you're falling into a false dichotomy. If keeping state tax rates down makes the state more dependent on Federal funds, it just means that state is spending too much and needs to whittle down its government to a better size, and get its expenses below its revenue.

  7. I'm here in Iowa and we come up near the middle on both. We will soon be on the downward path if the dems continue the rise to power in the local arena. I know for a fact the county auditor has cooked the books for the county I live in.

  8. As others have said, it's a false dichotomy.

    First, states don't pay taxes, individuals and corporations do. Therefore, the richest states are at the top of the list and the poorest are at the bottom. (States like Florida have the additional burden of being a mecca for a lot of retired folks as well.)

    Furthermore, if you wish to push an interstate highway all the way through a sparsely settled state such as I-90 through Montana, or I-40 through New Mexico, it's going to cost bigger bucks that than what that states population can afford.

    Military bases and other costly Federal projects are another concern, but that's already been covered.

  9. I'd noticed pretty much the same thing, and came up with the same caveats already mentioned.

    The Mercatur listing is factoring very heavily in our decision of where to move from California this year. It's customizable, so you can choose the freedoms that matter most and that changes the rankings slightly.

    We ranked the states using the customized list, lopped off the bottom 25, and went point by point through the rest and marked each one green/yellow/red for short-term "better than California" and long-term "place to settle down."

    Arizona and 3 or 4 others were green for short and long term, but it requires more research. Tennessee looks good too. Nashville, probably.

  10. I wonder how many of the conservative states that get large amounts of federal dollars are actually getting mineral severance and royalty monies back. In my home state of Wyoming the Federal Gov't owns 48% of all the land. We rank according to one of the links 38th in the most dependent on the Fed. One number I saw was that we received about $900M from the Federal Govt. Looking at just one mineral that is extracted from this state, coal generated about $600M in mineral taxes that were paid to the Federal Govt., that doesn’t include lease revenue. Taxes on Oil and gas generated in 2012 approximately $468M, again that doesn’t include lease revenue. There are other minerals that are extracted in this state that pay federal taxes for their production. Just some thoughts…

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