Is Your State A Net Payer Or A Net Taker?

Federal Income Taxes, State Taxes, Taxes

How do you adjust the U.S. tax system so that everybody pays his or her fair share? That argument has been going on for as long as taxes have been collected – because it’s very difficult to get everyone to agree on the definition of a fair share. Not everyone receives benefits proportionate to the taxes that they pay.

That same argument also takes place on a state level. The majority of states are net takers, meaning that they receive more in federal spending per capita than they pay in federal taxes. On average, states receive $1.18 in benefits for every dollar that they pay in taxes. However, some states are net payers that pay more in taxes than they receive in benefits.

According to a report from the New York State Comptroller’s Office, 13 states were net payers in fiscal 2016. New Jersey tops the list of net payers at a per capita deficit of $3,076, receiving just 76 cents for every dollar paid in federal taxes. The Garden State is followed in order of per capita deficit by North Dakota, Connecticut, New York, Wyoming, Massachusetts, Minnesota, Illinois, New Hampshire, Nebraska, South Dakota, California, and Texas.

Image source: Office of the State Comptroller, State of New York

Not surprisingly, nine of the top ten states in federal taxes paid per capita are on the net payers list, with Connecticut leading the way at $16,052.

New Mexico is on top of the net taker states, with a per capita surplus of $9,693. The Land of Enchantment received $2.57 for every dollar paid in federal taxes, but it’s not because they pay the lowest federal taxes per capita. That honor belongs to Mississippi at $5,557; New Mexico paid $6,182.

Image source: Office of the State Comptroller, State of New York

For purposes of this study, what constitutes federal payments and benefits? There are five categories listed for federal taxes that constitute approximately $3.1 trillion, or 94% of all federal revenues. Individual income tax provides 47% of revenues at $1.541 trillion, while social insurance taxes such as FICA provide 34% of revenues at $1.106 trillion. Corporate income taxes contribute $300 billion, excise taxes add $95 billion, and estate/gift taxes add up to $21 billion.

On the side of paying out federal benefits, there are four major categories listed in the study that constitute 94% of all expenses. Direct payments such as Social Security and Medicare constitute 59% of all federal benefit payments. Grants (including Medicaid) make up another $655 billion, or 17% of federal spending. Government procurement adds $445 billion to spending (12%), while wages and salaries to government workers make up another $251 billion (7%).

If your state is a net payer, don’t expect to get off that list anytime soon. A similar study for fiscal 2015 also showed 13 states that were net payers, with one difference – Colorado replaced South Dakota as a net payer per capita. Both states were very close to a net balance in both years.

It’s worth noting that the one state that was in the top ten of federal taxes paid but not on the list of net payers was Maryland. Because Maryland is a relatively small state with a high number of government workers, the government benefits received there are disproportionately large. Virginia, another state bordering our nation’s capital, shows similar statistics.

We leave you with this last bit of irony. Because of the same principle listed above, the District of Columbia is off the charts in being a net taker, with a per capita surplus of $55,130. This statistic makes sense, because a huge percentage of District of Columbia residents work for the government and therefore receive government benefits in the form of paychecks – but it’s still insightful that the home of our government is the biggest net taker by more than a factor of five compared to all the states.

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