Red vs. Blue, Revisited

Atrios correctly pointed out that I should have weighted the data in computing the average net receipts from or payments to the federal government for the two categories of states. Because the data in the Tax Foundation Report reports “[Federal] Expenditures per Dollar of Taxes”, simply averaging the numbers by state is misleading. Here’s an example of the issue:

 An Example of why Weighting Matters Expenditures perDollar of Taxes Total Tax Revenue Total Federal Expenditures(=Exp. Per Dollar * Total Tax Revenue) Blue Blue-1 \$1.05 \$50 million \$52.5 million Blue-2 \$.80 \$2 million \$1.6 million Red Red-1 \$.97 \$30 million \$29.1 million Red-2 \$1.20 \$4 million \$4.8 million

So, with two states in each category, the simple average for the Blue States is (1.05+.80)/2=\$.93, which looks like a bad deal. The simple average for the Red States is \$2.17/2=\$1.09, a great deal. Blue States get screwed and Red States do well! But this doesn’t account for the fact that the Blue State that is a net beneficiary (Blue 1) is much larger than the Blue State that loses out (because Blue 1 pays \$50m in taxes; Blue 2 only pays \$2m). As Atrios points out, the correct approach is, separately for Red and Blue states, to compute Total Federal Expenditures and Total Taxes Paid and then divide the former by the latter. In this example, this calculation shows that Blue States get back \$1.04 per \$1.00 paid in taxes, while the Red States break even–a complete reversal of the earlier conclusion. Now Blue States benefit more than Red States, which is the correct conclusion (in this hypothetical example).

In any event, I did the correct analysis for Red and Blue states, and came up with the following picture (click to enlarge):

So the basic point remains true: the states that rail most against the federal government also get back more from the federal government than they pay. Factually, this doesn’t bother me. The Blue states are generally more wealthy than the Red States, and this picture is a natural consequence of progressive taxes. The part that bothers me is hearing Ted Stevens (his state gets back over \$1.50 per dollar paid in taxes), or Trent Lott (\$1.78), or Bill Frist (\$1.20) whine about government and taxation without acknowledging this basic point, and their role in contributing to it (see Lott in action here). Dick Armey, on the other hand, may have a point: Texas gets back \$.92 per dollar paid in taxes.

If you’re interested, more data and details are available here.

AB

UPDATE: Uggabugga has more, including fancy maps.

UPDATE: Red vs. Blue Income Numbers here; a brief argument for why liberalism causes economic growth here.