Why some states get less from Uncle Sam
A Tax Foundation report measures how much each state gets in federal spending compared to what it pays in federal taxes.
NEW YORK (CNNMoney.com) Ė Do you live in a "donor" state?
Residents of New Jersey do. For every $1 they pay in federal taxes, they get back just 55 cents in federal spending per capita.
Residents of New Mexico, on the other hand, double their money -- for every $1, they get back $2.
The Tax Foundation, a nonprofit policy research group that advocates for a flat tax, calculated the discrepancies between states in their bang-for-the-federal-buck using data from the Census Bureau for fiscal year 2004.
The categories of federal tax collected from each state include federal income tax (both individual and corporate), social insurance tax, excise taxes, estate and gift taxes and customs duties.
On the federal spending side, researchers considered what each state received in terms of retirement and disability benefits, grants to state and local governments, other direct payments, salaries and wages paid to federal employees in a state, and money from federal government contracts to companies in a state.
The Foundation did make some key assumptions, however. For example, since the federal government spends more than it takes in, the Tax Foundation assumed the deficit reflects future tax collections and counted all of those collections as if they were made in fiscal year 2004.
Also, they spread out across all states the burden of certain federal excise taxes that are disproportionately paid by a few states. For example, a lot of the corporate excise taxes on bourbon come from Kentucky, but bourbon is consumed across the country and often corporate taxes are passed along to consumers in the price of a good and to shareholders in the form of lower profits.
While a state's politicians can have sway over discretionary federal spending, a lot of federal spending is not discretionary, said Tax Foundation economist Curtis Dubay.
For example, the federal money spent on a state for retirement and disability benefits will be determined by the number of residents eligible for those benefits.
Another factor influencing how much a state gets from Uncle Sam is the level of income generated by a state. What's common among states like New Jersey with the least favorable tax-to-spending ratios is that they tend to be among the higher income states.
But since the federal tax code doesn't recognize cost-of-living differences and salaries tend to be higher in pricey places, residents in high-income states tend to pay more in federal taxes because they are taxed at higher rates than if they made a lower income in a less expensive state.