FEDERAL FUND DISPERSAL
Megan McArdle has an interesting response to Kevin Drum’s observation that the “red” states get back a lot more from the Federal tax system than they put into it and are thus subsidized by the “blue” states.
Kevin is himself a bit tongue-in-cheek, conceding that there are several “red” and “blue” states that don’t match up with this. Megan provides a breakdown showing that the difference goes away when controlling for income; this is largely obvious but usually ignored. She goes on to make two points that are more novel:
In other words, the variance seems to be explained almost entirely by two things that blue staters are heavily in favor of (presumably): progressive taxation, and hog-wild entitlement spending.
…Californians and New Yorkers with a combined family income of, say, $120K, don’t think of themselves as the rich that they’re trying to tax. And of course, because of the cost of living in those two places, they aren’t rich — they just look that way to the IRS. So when they advocate taxing the rich, they aren’t thinking of themselves, but the guy up the line, maybe the one making $300k — he’s the bastard who deserves to get soaked. Then they’re surprised to find that their red-state neighbors, to whom $120k is wealth beyond dreams of avarice, have managed to put them on the hook as well.
This strange impact of progressive taxation–and, indeed, taxing of income, period–is seldom discussed in popular discussion: The meaning of “poor,” “middle class,” and “rich” not only vary considerably with time but also with geography. So, some poor bastard in Manhattan whose $80,000 income affords him a luxurious one-bedroom efficiency apartment and no car is taxed at a very high rate while someone in Little Rock, whose $35,000 income is sufficient to buy a small house and a new car, is taxed at a lower rate. With some of the Manhattanite’s largess being used to fund subsidies for Little Rock, no less.
Update (2215): The IRS tax brackets for 2003 are here. If my calculations are correct, a single earning $80,000 owes $17,146 in federal income tax whereas a single earning $35,000 owes $5560. Obviously, deductions make the bills smaller. To add to the irony, if the $35,000 fellow in Little Rock has a home, he can deduct the mortgage interest whereas the Manhattanite, who is stuck in the apartment, has to foot the entire–much higher–bill.