The Federal Budget and the States Fiscal Year 1999: Who Wins, Who Loses and Why

Contact: Adrianne Kaufmann
Phone: 617-495-8290
Date: December 09, 1999

CAMBRIDGE -- The 23nd annual Federal Budget and the States report, which will be released in a Capitol Hill press conference Thursday, provides a state-by-state analysis of the $1.5 trillion of Federal spending that Congress allocates each year and the distribution of the Federal tax burden required to support that spending.

The report, produced by Herman B. Leonard and Jay H. Walder, faculty at Harvard University’s John F. Kennedy School of Government, addresses the ongoing concern about whether states receive a "fair share" of Federal spending or pay more than their "fair share" in taxes.

From a national perspective, the Kennedy School researchers find significant differences in the way the Federal budget affects individual states. Most striking is that the ten states with the largest deficits have remained unchanged for the past seven years. These ten states, all but two of which are in the Northeast and Great Lakes regions, had a combined deficit of nearly $87 billion in FY 1998. The top surpluses are less concentrated, but there is a noticeable geographic pattern toward the South. New Mexico led the nation with a per capita surplus of nearly $3,700.

The authors note that the movement of funds between Washington and the states leads to redistribution of resources from wealthier states to lower-income states. While the explicit intent of the Federal financial system may not be to redistribute economic activity across states, the trend of recent years has been toward greater redistribution. Although the redistributive impact of taxes has been largely constant over time, Federal spending has steadily become more redistributive in the past decade.

This year for the first time the report provides data on a program by program basis. A major new finding is that explicitly redistributial programs, which total about $170 billion, actually redistribute only about $20 billion across states. In effect, these programs almost entirely involve redistribution to and from taxpayers of the same state. By contrast, the defense program, which spent $240 billion in FY1998, resulted in the transfer of about $60 billion across states.

You can receive a complete copy of the 1998 Federal FISC Report by contacting Adrianne Kaufmann in the Kennedy School Press Office at 617-495-8290. The report is available on the web at http://www.ksg.harvard.edu/taubman/

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