Democrats Don’t Understand Red States’ Tax Revenues

Rural America has a peaceful charm, but there is little money in it.

Many a meme I have seen shared by Democrats on my news feed about the tax revenues of their adversaries. Their thesis is simple: blue states always pay more in federal taxes than they receive, and therefore, Democratic economics is superior to Republican economics. While I think it is true that Democrats have overwhelmingly better economic policies (on average), this argument by members of my party actually shows a a rueful ignorance on the economics behind this trend, so I am going to try and set the record straight.

First of all, is revenue-payout discrepancy between red states and blue states true? Numerous sources confirm that it is, in fact, true. Even the right-leaning news source The Federalist affirmed this, in a piece by Kyle Sammin, who wrote:

Democrats are correct on this fact. The blue states did pay more per capita in federal taxes than the red did. The $12,648 per capita taxation there is 118 percent of the national average. The purple states fell in between the two, slightly below the national average.

There is more to it than that, though. Sammin goes on to denote the role of poverty in the equation (among other finer nuances that are worth checking out). John Tierny, writing for The Atlantic, concurs. He points out that the South, which mainly leans red, has always had higher poverty levels, and poor people ultimately have less that they can pay in taxes. Furthermore, federal funds find their way into this region for the purposes of poverty alleviation. Some of you may be thinking that this proves the point. “People are poor in red states because Republicans have poor economic planning.” There is more to it than that, as Tierny elaborates:

Part of the explanation for why southern states dominate the “most dependent” category is historical. During the many decades in the 20th century when the South was solidly Democratic, its congressional representatives in both the House and the Senate, enjoying great seniority, came to hold leadership positions on powerful committees, which they used to send federal dollars back to their home states in the form of contracts, projects, installations.

Thus, some of this is residual from an era when the current red states would have been considered blue states, when Democrats were the ones running the South. Granted, they were a different flavor of Democrat than what we see today and had some similarities to their Republican successors, but they still embraced a lot of the New Deal policies of the Twentieth Century, and to ignore the last century of the economy when judging the revenue-producing ability of these states will only skew one’s conclusions.

It is worth remembering, also, that these poor people are frequently people of color, kept impoverished by the boot of Jim Crowe, and some of these whiter, blue states have simply not had to contend with that legacy of oppression. In effect, they are essentially bragging about their lack of misfortune. Before any Democrats sit in their haughty armchairs and sneer at poorer, red states, they must accept that these poor people have to live somewhere. If they picked up and moved to Oregon and Washington, I suspect both of these states would be surprised at the problems they would suddenly have to solve and how eagerly they would accept federal dollars as a result.

As that historical example with the South shows, whether or not a state is red or blue is not always constant. California spent several recent years under a Republican governor. It easily produced more in federal revenues than it takes. Does that mean red states can work after all, or is it something deeper?

Greek economist and politician Yanis Varoufakis provides some answers. In an interview on The Rubin Report last year, he observed:

In every economy, in every currency union, there are “surplus areas,” areas that produce surpluses like California, and there are “deficit areas,” like Missouri. In Europe, it’s Germany and Greece. Within Germany, it’s Eastern Germany and Western Germany. There will always be surplus producers and deficit producers.

This gets to the heart of the issue. No matter which party is in control, a state’s economic infrastructure is a state’s economic infrastructure. Consider the example of California that Varoufakis raised. What does California have that Missouri does not? It has Hollywood, it has Silicon Valley, it has trade with Mexico and the Pacific, it has the third-most land of all the states, and it has the highest population. This gives California a lot of opportunity that a place like Missouri simply does not have. It may be true that its liberal politics helps it out, but this is likely only true on the margin. Even within California, this is true. Its urban areas tend to be the main producers of revenue, and some of that has to be spread out to the rural areas to keep them (and thereby the whole state) afloat.

Republican policies do not cause states to have poor, sparse, non-urbanized, or non-industrial societies. If anything, the reverse is true. These underdeveloped corners of the world tend to have more conservative values, so it is hardly a surprise that Republicans do well electorally in these states. Rather than wag their fingers at a problem that is mainly not their fault, Democrats should accept these disparities for what they are and decide what to do to address them at the federal level. After all, if they want to make gains in 2018 and 2020, they need to make it clear to voters in these states that they are, in fact, on their side.

Red states are a crucial part of the American economy. Whatever you may think of the beliefs of the people in them, they connect the wealthier blue states on the West and East coasts and contribute much in the way of resources and patronage to blue state enterprises. For that reason, we should all be appreciative that they play their part to make us all better off and plan our federal spending around the inevitably of these deficit areas.

Democrats can see faults or see solutions. Which will it be?

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