Clarifying Federal Taxes Paid vs. Spending Received by State: MSNBC Host Cites Tax Foundation Study in Story on Stimulus Spending

March 16, 2009

Last week, Governor Mark Sanford (R-SC) announced a different plan for some of the stimulus money his state is receiving. This from David Shuster, host of MSNBC’s 1600 Pennsylvania Avenue, last Thursday:

“South Carolina is due to receive $2.8 billion in stimulus money aimed at creating or saving jobs. This week, Governor Sanford announced he will seek a waiver to use part of the money his state will control, $700 million, to lower the state debt instead of putting it towards spending.”

Shuster went on to use the Tax Foundation’s Federal Taxes Paid vs. Spending Received by State study in calling Sanford a hypocrite when it comes to federal government spending.

“The problem is that South Carolina has been spending money it doesn‘t have for a long time. According to the Tax Foundation and census figures, for years South Carolina has been spending far more federal funds than it contributes in taxpayer dollars.

“In 2005, the most recent year available, for every dollar South Carolina contributed to the federal Treasury in taxes, South Carolina got $1.31 back from the federal government to spend. It‘s true that some of this related to federal mandates, but some of it did not. South Carolina‘s unemployment figures now over 10 percent, the second worst in the nation and behind only the state of Michigan.”

Here’s the video:

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Shuster is right that South Carolina gets more federal funding than it pays in federal taxes, but if he’s implying that Sanford has anything to do with that, he misunderstands our study. The spending-to-tax ratios are driven by demographic factors like the age of the population and the average income, not governors and state legislators. South Carolina has been a “recipient state” since at least 1981, ranging between $1.19 and $1.36 in federal spending received per dollar of taxes paid. Sanford was first elected as a Congressman in 1995, then as Governor in 2002.

To quote the author of our most recent dollar-for-dollar comparison, former Tax Foundation economist Curtis Dubay:

“The Tax Foundation’s annual federal tax burden and expenditure study clarifies the geographical patterns of income redistribution that federal tax and spending policies cause each year. The results of the study have been controversial for years because they show that the nation is not only redistributing income from the prosperous to the poor, but from the middle-income residents of high-cost states to the middle-income residents of low-cost states.

“Thanks to a steeply progressive federal income tax, states with higher incomes pay vastly higher federal taxes, payments that are unlikely ever to be matched by federal spending directed to those states. Ironically, most of these high-paying states are the so-called blue states that have generally elected politicians who support a more steeply progressive tax system even though their own constituents bear a greater share of the burden as the code gets more progressive.”

Shuster might have asked Sanford why, if he’s so dead-set against “spending money that you don’t have,” his own state was in debt in the first place. But every state has debt, and reducing it with the stimulus money is a fiscally prudent concept. However, the terms of the stimulus bill forbid using it for that, which is why Sanford is requesting a waiver.

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