Which States Receive The Most and The Least Federal Aids In The US?

Which States Receive The Most and The Least Federal Aids In The US?

Federal aid is given to states for many reasons, but mostly to help boost state funding for programs or projects that are seen as important to the whole country. Examples include Medicaid payments, help with funding for education, help with building infrastructure, and more. Some federal aid comes in the form of handouts that are given to people who meet certain criteria. Other federal aid is given based on formulas set by law. When the federal government gives money to states, formula grants generally take into account things like population size, poverty rates, and state matching funds. Competitive grants are given out at the judge’s judgment, and the amounts given vary from year to year more often.

In 2022, the federal government gave more than $1.2 trillion to the states. Most of that money went to health care services.

The federal government follows a plan to figure out how much money each state or locality will get in formula handouts. This formula usually takes into account things like the number of people living in an area, the poverty rate, and the area’s unique needs.

For instance, federal Medicaid funds are given to states through formula payments that are based on their specific health care needs.

For competitive funds, on the other hand, state and local governments have to send the federal government proposals or applications. In these bids, they explain how they will use the grant money to reach certain objectives. The government then chooses the winners based on how good the ideas are.

States that get a lot of government grants-in-aid tend to have a lot of people with low incomes and not much tax money coming in. Some exceptions exist, but in general, states that depend less on federal aid tend to raise more taxes and have fewer people living in poverty. Notably, both North Dakota and Alaska have relatively low tax rates on their people. However, they are both resource-rich states that get most of their tax money from severance taxes, so their reliance on federal aid is very different.

The federal government gives money through many programs that work together. Because of this, the amount of federal help in state revenues is based on how much money both state and local governments get together.

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In the United States, about 42% of income tax money came from the top 1% of earners. This brings in 10% of all federal tax money for the government. The top 1% of earners in California paid 16.13% of the national income tax. The top 1% of earners in New York paid 8.34%, the top 1% of earners in Texas paid 7.85%, and the top 1% of earners in Florida paid 7.58%. The wealthiest 1% of people in Florida, Nevada, and Wyoming pay more than half of all income taxes in those states.

New Mexico is the only state that pays less in taxes than it gets in aid; for every dollar of aid it gets, it pays only 85 cents in federal taxes. This was the only state that gave the federal government more money than it got back in taxes. West Virginia, Alaska, Mississippi, and Montana are the next four most dependent states. Each year, they give about as much money to the federal government as they get back. The states that count on other states the most are Hawaii, Vermont, Louisiana, Alabama, and Wyoming.

Rank

State

Political Affiliation

Dependency Score

Return on Tax Dollars

Fed Fund % of State Revenues

GDP (in $M)

1

New Mexico

Blue

100.0

$3.69

32.06%

$122,359

2

West Virginia

Red

89.5

$3.09

34.07%

$96,724

3

Mississippi

Red

75.0

$2.60

32.41%

$138,156

4

Alaska

Red

73.0

$2.41

33.90%

$64,257

5

Kentucky

Red

57.8

$1.89

32.20%

$258,293

6

Vermont

Blue

54.9

$1.50

35.83%

$40,249

7

Montana

Red

50.8

$1.59

32.13%

$64,757

8

Arizona

Red

49.8

$1.71

30.07%

$453,602

9

Maine

Blue

47.2

$1.72

28.27%

$83,514

10

Alabama

Red

46.2

$1.80

26.61%

$275,396

New Mexico

For every dollar it gets from the federal government, New Mexico only has to pay $0.85. New Mexico’s economy has been hurt by “brain drain,” which is when highly educated workers leave for better jobs elsewhere.2. A lot of people 65 and older who live in the area were left behind.

West Virginia

West Virginians get back almost all of the money they send to the federal government because they pay $1.04 for every dollar that is sent back to their state.

West Virginia also came in third place in a recent SmartAsset study that looked at the states where people are struggling the most financially. The state has a poverty rate of 16.8%3. Also, only about 22% of people have a college degree, which is less than in any other state in the country.

Mississippi

Mississippi’s ability to be economically independent is limited by a number of factors. As a result, the state gets $1 from the federal government for every $1.19 it gets from people, companies, and transactions. In the past, the state has had high rates of poverty and low levels of schooling. A recent SmartAsset study also found that Mississippi residents are having the second most trouble with their finances. It also gets hit by natural disasters that need to be cleaned up.

Alaska

Alaska needs more help than most states because it is so far from the rest of the United States and has such a harsh environment. For every dollar of aid it gets, the state pays back about $1.09, and its GDP was the third lowest in 2022.

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When federal funding was looked at per person, Washington, DC, stood out because it got the most federal funding per person:

1. Washington, D.C. ($6,983 each)

2. Wyoming costs $6,894 per person

3. Alaska ($6,495 per person)

4. Vermont ($5,463 for each person)

5. Delaware ($4,373 for each person)

According to a study by MoneyGeek, states with better GDP per capita depend less on the federal government.

“Higher-income states produce the majority of the tax dollars that go into the federal government’s pocket,” says Fallon. States and their people need less help and use fewer government dollars when their income is higher.

Fallon said that changes to the tax code have made the donations of wealthy states stand out more.

“Before, people who paid large state income taxes would deduct those from their federal tax payments,” she adds. Now, you can only subtract so much from your state taxes. “Ironically, it means the wealthier states’ populations are paying even more.”

Minnesota gives the federal government $6.88 for every dollar it gets in aid. This is made up of personal and business income taxes, excise taxes, estate taxes, and gift taxes. Minnesota is the least reliant on the federal government. Its median family income is about $77,720, which is higher than the U.S. median of $69,717. It is also the fifth most important agricultural state4.

New Jersey has a strong economy because it has a lot of people, is close to New York City and Philadelphia, has beaches, and has a big port and airport. With 41.5% of residents having completed college5, New Jersey has the fourth-most educated workforce in the country from 2017 to 2021. This helps the state’s business. The state of New Jersey gets $1 back for every $6.28 it gives to the federal government.

The First State6 is known for being business-friendly, and more than 65% of the Fortune 500 companies in the US are based there. Delaware’s total taxes are about $32.3 billion, or $6.09 for every dollar the federal government gives them.

It has over 12.5 million people, making it the sixth most populous state. It also has the fifth highest GDP by state7,8. And because Illinois pays $5.88 in taxes for every $1 it gets back, it is the fourth state that depends the least on the federal government. Because it is on the Great Lakes, Chicago is an economic hub for the Midwest. Like Minnesota, it is also one of the top 10 states in the U.S. for agriculture production.

The Sunshine State is the fifth-least reliant on federal help, giving $5.78 in taxes for every $1 it gets from the federal government. Florida had the fourth highest GDP of all 50 states in 2022. This was due to its popularity as a tourist spot.

Seven of the ten states that rely on the federal government the most were Republican strongholds. On average, red states got $1.05 back for every dollar they spent.

In 2021, only nine states sent more money to the federal government than it got. In 2022, 29 states sent more than they received.

It was mostly Democratic voters (52% of those states) and Republican voters (48% of those states).

The best return on government spending was in New Mexico ($3.69), and the worst was in Delaware ($0.32).

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