The cost of bureaucracy

California Commentary

Is California really a tax donor tax?

By Jon Coupal   A recurring political debate is whether California is a “donor” state as opposed to what some call a “receiver” state. The argument is that high-tax states, which tend to vote Democratic, pay more in federal taxes than they get back in federal government spending. Progressives argue that states like California and New York are “subsidizing” Republican states, which have lower tax burdens.   No one whines more about how California is somehow being shortchanged relative to conservative states than our own governor, Gavin Newsom. For example, in June, his press office sent out a release claiming that “. . . California is the biggest ‘donor state’ in the country — providing around $83 billion more to the federal government than it receives from the federal government.”   As support for his thesis, Newsom quotes economist Paul Krugman who stated that California is “an economic and technological powerhouse” that “is literally subsidizing the rest of the United States, red states in particular, through the federal budget.” Krugman is obviously correct about the “economic powerhouse” bit – which California has been for decades under both Republican and Democratic governors – but he is off base on the subsidizing part. It should be noted that National Review refers to Krugman as “Always Wrong, Never in Doubt.”   But it now appears that Gov. Newsom’s narrative isn’t quite as solid as one would believe. According to a September 18 article by Nicole Nixon in the Sacramento Bee, California was actually a “recipient” state in 2023, the most recent year for which data is available: “In its latest analysis of the cashflow between states and the federal government, the Rockefeller Institute of Government found California received $13.4 billion more in federal funds than what residents and businesses paid in tax receipts in 2023.”   Nonetheless, it is likely true that, in most years, California sends more tax revenue to Washington than it receives in benefits, depending on how those funds are classified. But the broader question is: what difference does it make? Is the entire “donor” versus “recipient” state issue even relevant?   In an ongoing effort to determine winners and losers, The Rockefeller Institute’s “Giving or Getting?” report is published periodically and is usually cited by progressive politicians and interest groups to support their claim that progressive states are not being treated fairly. See, for example, the aforementioned Paul Krugman’s column entitled “The Moochers of Middle America.”   The problem with the Giving or Getting report is its methodology. For example, benefits under the Supplemental Nutrition Assistance Program, or SNAP, are clearly a federal subsidy, but paychecks to members of the military are not. And yet the Rockefeller report treats both the same for purposes of determining the balance of payments among the states.   After Gov. Newsom recently implied that perhaps California could somehow withhold tax payments because of the perceived imbalance, CalMatters reached out to several tax experts for reaction. “The governor’s long-standing complaint that California is a donor state rings hollow,” said Jared Walczak, vice president of state projects for the Tax Foundation, a Washington, D.C.-based right-leaning think tank. “Unless California politicians are questioning the legitimacy of Medicare, Medicaid, and Social Security, the complaint that California residents pay more in federal taxes than they get back is disingenuous.”   Additionally, the “donor state” issue is meaningless because, “states and counties with more wealthy taxpayers are not ‘donors,’ the taxpayers themselves are,” according to the National Taxpayers Union. Even the California Budget and Policy Center, a progressive, labor-funded foundation seems to have conceded the point: “The whole idea of weighing how much money goes out of California and how much comes in is not even worthwhile,” said Scott Graves, budget director at the California Budget & Policy Center.   We couldn’t agree more.   What really matters is whether the money is spent responsibly, recklessly, or corruptly.   Jon Coupal is president of the Howard Jarvis Taxpayers Association.