Haves and Have Nots: States Dependent on the Government

This report illustrates the extent to which states are independent economically. In order to identify which states most and least depend on federal support, WalletHub compared the 50 states across three key metrics: return on taxes paid to the federal government, federal funding as a share of state revenue, and share of federal jobs.

Key Stats

• With an average dependency rank of 20.92, Red States are altogether more reliant on federal funding than Blue States, which rank 30.08 on average. (The lower the rank, the more dependent the state is.)
   
• There is a 55.5 percent correlation between a state’s federal dependency and its per-capita GDP. That means the least wealthy states tend to receive the most federal support.  
   
• Illinois is the fifth least federally dependent state, which helps explain the fact that it has the highest tax rates in the nation. On the flip side, Alaska is the most federally dependent state and has the lowest tax rates.

View the full report and your state’s rank.

Expert Commentary

Which programs should be a state/local responsibility and which should be a federal responsibility?

“Federal resources are more likely to support programs that are intended to increase societal benefits or reduce societal costs. For example, Title I funds in education are distributed according to the level of family economic disadvantage, recognizing that it is important to ensure that all children are healthy and well-educated. State resources may be prioritized for uses that yield benefits primarily within the state, such as economic development incentives.”
Carolyn J. Heinrich – Professor, Vanderbilt University

“Rather than offer a list of programs here, it might be better to explain how these decisions are often made. The way that we generally approach this is to ask a set of questions about the problem a proposed program is intended to address: Does this problem span or cross state (or international) borders? Is the problem producing significant inequitable outcomes from one state to another? Is the problem something that we have collectively decided should be a national priority? Is the problem something that affects the ability of the federal government to successfully carry out its other responsibilities? This is not an exhaustive list of questions we might ask here, but if the answer to any of them is yes, then there is a strong case for federal or joint federal-state responsibility. It is also worth pointing out that there is at least as much overlap between federal and state/local responsibilities as there are separate or distinct spheres. It is rarely an either/or proposition. Most federal programs are administered by states and/or local governments.”
Dr. Samuel B. Stone, Ph.D. – Professor, California State University, Fullerton

What is the fairest way to redistribute federal resources back to the states?

“Here I would probably promote a ‘standard of service’ model. The federal government establishes a standard of service and then allocates resources to secure that. States or localities needing more resources to attain the standard (always assuming a proportional effort) would get them before supporting a higher quality or standard somewhere else. This would not bar a place from making an extra effort on its own to secure a higher standard, simply ensuring the Constitutional injunction to ‘promote the general Welfare’ would be honored.”
Jack Corbett – Professor, Portland State University

“The fairest way to redistribute federal resources back to the states would be based on need, targeting the states that are unable or unwilling to address regional and household disparities on their own, and based inversely on past investments. In other words, regions that have not been the target of large federal investments in the past should receive the highest priority for future investments. The United States needs to return to policies of even growth and development abandoned since the 1980s and revamp an organization similar in purpose to the U.S. Advisory Commission on Intergovernmental Relations (ACIR) as a means of reducing political polarization. The ACIR was a bipartisan independent agency that helped the country answer these questions until its elimination in 1996. Since the time of its demise, there has been no equal think tank or forum for considering how the distribution of responsibilities under federalism can help bridge the political divides plaguing the country.”
Rick Funderburg – Associate Professor, University of Illinois Springfield

What more can the current administration do to help reduce the impact of revenue shortfalls in state budgets during the current economic climate?

“Some would argue that the problem of state tax revenue shortfalls is one that the relevant states must grapple with on their own. It is my own personal view that what the Biden administration can do best is mostly what it is already doing: striving for full employment, reducing inflation to get interest rates and borrowing costs down, and using its policy authorities to help specific groups of individuals be more economically productive, such as reducing or eliminating student debt, getting more folks on Obamacare, and directing available resources to the most vulnerable and disadvantaged communities in the least burdensome ways. Maybe there is even a way that the IRS can assist states in going after tax cheats, the existence of which is a terrible burden on honest taxpayers.”
Brian J. Cook, Ph.D. – Professor Emeritus, Virginia Tech

“Outside of major shocks like recessions, pandemics, and natural disasters, we generally do not think of it as being the federal government’s responsibility to sort out state-level revenue shortfalls and state budgets. The federal government does have a responsibility to provide adequate funds to federal programs that are administered by states (and often require state matching funds). Fluctuations and uncertainty in these funds translate to burdens that states and their local governments have to bear.”
Dr. Samuel B. Stone, Ph.D. – Professor, California State University, Fullerton