The Fourth Branch provides us with this interested map, which categorizes states according to the return on their taxes from the federal government. The states coded red receive more than a dollar in revenue for every dollar in taxes that is sent to the federal government, while those shaded blue receive less than a dollar. As both The Fourth Branch and Ezra Klein have pointed out, there’s alarming correlation between those states that voted Republican in the last election (and that house the majority of the most zealous anti-tax activists) and those that receive a positive return on their taxes. The political dimension to this paradigm is immediately apparent. It seems that those who are the most indignant about taxes are getting the best deal out of them.
Hypocrisy aside though, I think that geography is the dominant force here. Taxes are redistributive. We most often think of this redistribution in terms of individuals’ income- a progressive income disproportionately taxes the wealthy, whose income the government uses as a social safety net for the lower and middle classes. This redistributive mechanism holds as true for geography as it does for income levels. The states that receive more than one hundred cents on the dollar are the beneficiaries of the redistribution of wealth from other states. Part of this is a function of the income distribution described above. States that receive less than a full return on their taxes like New York and California are relatively wealthy. It makes sense then that when wealth is redistributed from the rich (who are likely to live on either coast) it will end up in poorer parts of the country like the Midwest.
I think this only explains part of the above map though. Government services vary by quality and scope across states but there exists some minimum level of service no matter where you live. You have the option to go to a public school. Roads are paved and maintained. Every municipality has a policy force. Et cetera. Economies of scale tells us that in less populated areas, the per capita cost of that minimum level of government service is higher than in more populated areas. A town of 5,000 needs an elementary school just as much as a town of 50,000, but the cost of building that school is spread across 5,000 people rather than 50,000, making it more expensive per person. Of course, those living in smaller towns don’t generally pay more in taxes than those in larger towns. The resulting gap between revenue and the cost of services is absorbed by the federal government, or more specifically, by tax payers in wealthier, denser parts of the country.
Population density compounds the problem. Not only is the population of Montana 11% that of New York City, but it is spread out over an area 484 times larger than New York. A population that spread out needs more hospitals, schools, and especially roads per capita as a result.
The debate over health care reform underscored the divide between rural and urban. Midwestern senators opposed the public option in part because the federal government’s reimbursement rate would not sufficiently cover rural hospitals’ costs. That’s because while rural hospitals serve a fraction of the people that Washington Hospital Center does, their MRI machines are just as expensive.
Rural areas have long been maligned for being relatively damaging environmentally. I think that as urban areas become increasingly livable rural areas may also earn a reputation for being economically inefficient.
