High-income CT sends U.S. more in taxes than it gets back

Washington – When it comes to federal dollars, is it better for Connecticut residents to give or to receive?

It depends on who you ask.

Connecticut is among about 14 states receiving less in federal dollars than its residents pay in federal taxes.

According to a state-by-state analysis by the National Priorities Project “State Smart,” Connecticut gets about 81 cents from Washington for every dollar paid in federal taxes.

State Smart says Connecticut received about $41 billion dollars from the federal budget last year. That money included federal grants and contracts to businesses and the state and local governments, federal assistance going directly to Connecticut residents, and wages and other benefits to federal employees who work in the state.

State Smart also says Connecticut residents and businesses paid about $49.5 billion — or a per capita average of $13,558 — in federal taxes last year, placing it among the top states that funnel money to Washington per capita.

Delaware at $19,530 and Minnesota at $15,613 were the only states with higher per-capita tax numbers, but those figures were influenced by the taxes paid by the large number of corporations headquartered in those states. The payroll taxes those companies reported were for employees both inside and outside the states.

The National Priorities Project sought to reproduce as best as it could an annual report released by the Census Bureau called the Consolidated Federal Funds Report that detailed federal spending to the states. After nearly 30 years of publication, the  final report was published in 2011, its demise caused by federal budget cuts.

In Connecticut and other states, residents’ higher-than-average incomes drove the per-capita tax numbers, said State Smart author Becky Sweger.

“In all other states, the primary driver is individuals, not corporations,” she said.

State Smart said Connecticut has a lower poverty rate than the nation. The median household income in Connecticut is $68,102, higher than the U.S. median of $53,032.

Other states with high per-capita tax rates were Massachusetts ($13,344); New Jersey ($12,878) and New York, ($10,397.)

The states that send the least money to the federal treasury tend to be the poorest. Mississippi had the lowest per-capita tax number at $2,439. That means its residents and businesses paid, on average, less than one-fifth the federal taxes that their counterparts in Connecticut paid last year.

Mississippi and the nation’s other poorest states are “recipient” states, with the federal government giving them much more money than they pay in taxes. So Washington plays Robin Hood in taking from the rich and giving to the poor.

“A lot of states are unhappy with this imbalance,” said Tracy Gordon, senior fellow at the Urban Institute’s Tax Policy Center. “But you wouldn’t want to be a recipient state.” Not only because your residents would probably be poor, Gordon said, but because much of the money received from Washington would be for social welfare programs, such as Medicaid and food stamps, and not for economic development.

Gordon also said all states are suffering from a slowdown or leveling off of spending from the federal government because of the end of outflows from the Recovery Act, also known as the stimulus bill, that was aimed at blunting the recession, and because of caps on new federal spending.

“I don’t see the federal government initiating any new programs for states,” Gordon said.

Steve Ellis, vice president of Taxpayers for Common Sense, said recipient states tend to have higher unemployment rates than donor states.

“Would you rather have higher unemployment or live in a wealthier state with higher employment?” Ellis asked.

An advocate of less government spending, Ellis also points out that “in the aggregate, the whole country is getting more than it’s putting in because the federal government is running a deficit.”

 Discouraging money from Washington

Connecticut residents received about $21.4 billion in direct benefits from the federal government, State Smart said. That’s about $5,945 per person.

Most of that money was in the form of Social Security and Medicare benefits, but it also includes food stamps and unemployment benefits and federal education assistance, such as Pell Grants.

Connecticut companies with contracts with the federal government received $10.6 billion last year, State Smart said.

The biggest spender in Connecticut was the Department of Defense, which was responsible for 96 percent of federal contract money. Other top federal agencies with contracts in Connecticut were the Department of Health and Human Services, the Department of Veterans Affairs, the Department of Homeland Security and the General Services Administration.

But government contract money has decreased over the past five years, State Smart said. For example in 2012 and 2013 it totaled about $13 billion in Connecticut.

 About 32,000 people in Connecticut worked for the federal government in 2013. The average annual compensation for these workers – in other words, wages plus benefits – was $83,072. That’s higher than the average compensation for all other jobs in the state.

Nearly half of the federal workers in Connecticut are members of the military.

The State Smart report said Connecticut’s state government received nearly $6 billion in federal funds in 2012. About $1.3 billion of that involved grants that support the state budget, but Connecticut also spends billions of federal dollars accounted for outside the state budget, such as most Medicaid.

The biggest problem in increasing that amount of federal dollars is the Connecticut constitution, said University of Connecticut economics professor Fred Carstensen.

As part of a tax deal, the constitution was amended in 1992 to curb state spending. The spending cap, perhaps unwittingly, counts any federal money appropriated in the state budget.

“Therefore, we can’t go after the federal dollars we qualify for,” Carstensen said.

He said the spending cap has also resulted in a dearth of people in the state government who know how to seek federal grants and other sources of federal revenues.

“We are complete neophytes in applying for federal money,” Carstensen said.

Connecticut’s cities and towns may be doing better. State Smart said Connecticut’s cities and towns received an additional $680.5 million from a number of federal programs, including Community Development Block Grants, disaster assistance and public transit improvements.