Many people are beginning to wrap their minds around the House Republicans’ proposed destination-based cash-flow tax and what it means for tax reform. Most people are still looking into the tax’s impacts on trade and how...
- Which States Rely the Most on Federal Aid?
Which States Rely the Most on Federal Aid?
State-level taxes may be the most visible source of state government revenues for most taxpayers, but it’s important to remember that they are not the only source of state revenue. State governments also receive a significant amount of assistance from the federal government in the form of federal grants-in-aid. Aid is given to states for Medicaid, transportation, education, and other means-tested entitlement programs administered by the states.
States differ in the amount of federal aid they receive. The top recipient of federal aid in FY 2014 was Mississippi, which relied on federal assistance for 40.9 percent of its revenue. Other states heavily reliant on federal assistance include Louisiana (40.1 percent), Tennessee (39.9 percent), Montana (39.1 percent), and Kentucky (38.5 percent). As we have previously noted, these states, and others that rely heavily on federal assistance, tend to have modest tax collections and a relatively large low-income population.
Other states have comparatively low reliance on federal aid. North Dakota relies on federal assistance for only 16.8 percent of its general revenue. Other less-reliant states include Virginia (22.8 percent), Connecticut (24.6 percent), Nevada (24.8 percent), and Hawaii (24.8 percent). Trends in these states are opposite those in federal aid-heavy states; they typically have higher tax revenues and a smaller low-income population. Nevada is somewhat of an outlier, however, as it is able to export a large portion of its tax burden through sales taxes due to tourism. North Dakota is also able to export much of its tax burden, through severance taxes.
The map below shows each state’s dependence on federal assistance.
Erratum: A previous edition of this post mistakenly referenced federal expenditures in states, not federal aid to states. The previous edition also mistakenly referred to federal aid as per capita, not per state.
Get Email Updates from the Tax Foundation
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.