The Politics of Secession, Regional Net Taxpayers, and Net Tax Receivers
The discussion over Scotland's possible secession has often touched on the issue of regional net tax payments as a decisive issue in secession decisions. That is, if a region is a net tax-receiving region, then there is little incentive to secede, whereas, a net tax-payer region has significant incentive to secede. In the case of Venetian secession, for example, it has clearly been an issue for many decades as northern Italy (including Veneto) is well aware of its status as a the wealthier region of Italy that subsidizes the poorer south. This also appears to be the case with Catalonia, where the region generally pays more in tax revenues than it receives. Not all regions are aware of where they fit into the net tax-receiver puzzle however, and there's a big blind spot on this in the United States. Many have assumed that those areas of the country most associated with supporting government welfare programs, such as the northeast, must be net tax receiver areas.
The reality, however, is that the northeast is a net taxpayer region, as are other areas of the country most associated with being "pro-welfare" such as the west coast and Illinois. On the other hand, the region of the country most associated with being for "free markets" is the American south (not including Texas) which is generally far more of a net tax receiver region than anywhere else in the country. This runs contrary to many political narratives which insist that the so-called blue states are living off the sweat of the red states. The fact remains though, that it's the left-liberal regions of the country that are paying in the most in taxes, and much of that revenue moves south. Many left-wing bloggers are quite fond of pointing this out, as in this graphic here:
The blogger is trying to make a political point by including the political party affiliation of each state's US senators, although that's of pretty dubious value. The tax numbers appear to check out pretty well, though, and this map is just one example of many that can be found online. The breakdown here should not be surprising at all, however. The subsidized states on the map, such as Mississippi, Alabama, South Carolina, and others, all tend to have lower income residents, which means lower income-tax rates.
Thanks to a progressive income tax, rich people really do pay more income tax, even after taking advantage of all those rich-guy tax shelters. Also, states with older populations, such as Arizona and West Virginia, will certainly have more people on welfare, or as the recipients of such funds like to call it: "Social Security and Medicare." But also having a proportionally-large number of low-income people in general will mean more Medicaid money coming in, plus regular old TANF-type payments.
Meanwhile, those southern states often lack the worker productivity that is seen in places like Texas, California, and the Northeast. The fact remains that cities and places with high concentration of capital have more productive workers, and thus, higher wages, and more tax revenue. States that are more rural and agricultural will tend to have lower incomes, and more income in the form of transfer payments such as social security and welfare. In fact, in a great many rural counties of the United States, the number one source of household income is a taxpayer funded payment of some kind, whether government pension, disability, or some other sort of welfare.
We might also note that the south receives enormous amounts of income in the form of military spending, while very few military installations remain in the northeast. The west also receives a lot of military spending, but the west has few small towns and most people reside in cities where wages are higher. I might note, though, that if we were to look at this same map from 30 years ago, the difference between the south and northeast would likely be much more lopsided. The exodus of human and ordinary capital from the northeast to the south and west over the past 20 years has likely diminished the difference here in many cases. But the difference still remains.
So, it's not safe to assume that just because many people in a region claim to be in favor of free markets, that the area is necessarily not living off the tax revenues produced by people in some other region. Were a secession movement to ever pick up steam in certain regions of the US, it's a safe bet that one of the first things to happen would be the "experts" pulling out their calculators and having a look at just how truly financially independent the region is. How much tax revenue will your state lose if it secedes? We've seen it happen with Scotland, and the language of secession in the 21st century will likely be the language of "net tax revenue." Now, for the people in always secession-sympathetic Texas, that won't be a problem. Nor would it be a problem for people in Colorado, Massachusetts, Connecticut, Minnesota or Ohio.
Ryan McMaken (@ryanmcmaken) is executive editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor's degree in economics and a master's degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.