Add “Self Reliant” to the List of Minnesota’s Endearing Economic Qualities

A new study finds Minnesota’s tax support of the federal government far exceeds the benefits we receive from federal spending.

With all the quality of life and economic bouquets thrown Minnesota’s way, we can now add another:  we accomplish all our wonderfulness while being a major net contributor to the federal government’s coffers.  A recent report from the State Controller of New York looks at how federal spending in each state compares to the revenues the federal government raises there.  According to the report, Minnesota is one of only 11 states that contribute more in taxes to the federal government than the federal government spends in the state.

On the tax side, revenues include income taxes less refunds, social insurance, corporate, excise, and estate/gift taxes.  The expenditure side is broken down into four general areas:

  • Direct Payments –all federal payments made to or on behalf of individuals (includes Social Security, Medicare, veterans and federal retirement benefits)
  • Federal Grants – the wide variety of federal support for the delivery of state and local services (includes Medicaid, transportation, housing, work supports, child nutrition, family services, disaster assistance, etc.)
  • Procurement – federal government purchases of goods and services in the state
  • Wages and Salaries – federal employment in the state

The table below shows the details of Minnesota’s balance of payments relative to the nation.  Notably, Minnesota ranks in the bottom half of the nation in all four expenditure areas.  Total federal spending of $8,255 per capita in Minnesota is 18% less that the national average of $10,121.  On the flip side, per capita federal taxes paid in Minnesota are 15.5% higher than the national average.

Putting it all together, Minnesota’s $7.3 billion negative flow of federal funds in 2013 translates into $1,351 per capita placing us 47th in the nation (or the 4th most “self-reliant”).  Only high income peers Connecticut and New Jersey and depopulated-but-severance-tax-loaded Wyoming are bigger net “givers” on a per capita basis.  On the other end of the spectrum, federal lab-filled New Mexico, supply-chain-to-the nation’s capital Virginia, and policymakers’ favorite example of what Minnesota should not become – Mississippi – are the biggest net per capita beneficiaries of federal dollars.

None of this should be too surprising.  A healthy, high-income state like ours will naturally generate a lot of tax revenue given the significant progressivity of the federal income tax – which makes up the vast majority of federal revenues.  We will also be less likely to benefit from the need-related spending that makes up a lot of the direct payments and grants.

This study raises an important point often overlooked in the debates over Minnesota’s fiscal policy.  A significant portion of Minnesotans’ incomes is already being devoted to an extensive and far larger federal effort to redistribute wealth via direct transfers to individuals and funding need-based programs across the country through an even more progressive income tax.  As we prepare to embark on a legislative session that promises to include more debates about equity, policymakers will be wise to remember Minnesota’s heightened redistributive ambitions are far from the only such game in town.