By ALAN J. ORTBALS
Illinois is not getting its fair share of federal funds and Congressman Bill Foster, D-Illinois, intends to prove it.
In February, he and Scott Garrett, R-N.J., introduced the Payer State Transparency Act of 2015. The bill would require the Office of Management and Budget, in conjunction with the Council of Economic Advisors and the Treasury Department, to produce annual assessments of net economic effect on individual states of all federal spending programs and compare these figures against a model of state tax burdens developed by the Bureau of Economic Analysis.
According to Foster, $20 billion leaves Illinois in a typical year and doesn’t come back because Illinois is a “Payer State” that pays $1.36 in federal taxes for every dollar of federal spending returned to the state. Foster cited figures compiled by the Pew Charitable Trust, showing that Illinois receives the third-smallest amount of federal spending per-capita in the country.
The Payer State Transparency Act of 2015 would help shed light on this problem, Foster said, by collecting accurate, up to date data on the scope of the problem with a yearly “Payer State Report” that shows the effect of legislation on the state-by-state balance of payments.
“As a businessman who co-founded a manufacturing company, I understand the financial drag that federal Payer State policies put on companies that are committed to keeping good jobs here,” said Foster. “As the representative of Illinois’ 11th District in the U.S. Congress, I recognize the burden it places on middle-class families, and the tragic underinvestment in physical and human capital driven by the fact that Illinois is a Payer State. I’ve introduced the Payer State Transparency Act to develop a clear picture of how big this problem really is and to find ways to make sure Illinois taxpayers are getting their fair share.”
According to Foster, while the entire country is governed by the same federal tax code, the per-capita tax burden and the corporate tax burden vary substantially between states. Furthermore, many states get much more back in federal spending than others. This transfer of wealth from the “Payer States” to the “Taker States” inevitably shows up as higher state taxes, higher government debt, and underinvestment in education, infrastructure and health care in the “Payer States.”
The U.S. Census Bureau used to produce the Consolidated Federal Funds Report, an annual look at the geographic distribution of federal spending, but it ceased after its 2010 report. Pew stepped in to fill the void.
Pew uses publicly available data sources to show the state-by-state distribution of federal spending, divided into the five major categories used by the Census Bureau:
- Retirement benefits payments to individuals including Social Security retirement, survivor, and disability payments; veterans’ benefits; and other federal retirement and disability payments. Social Security accounts for about three-fourths of these payments.
- Nonretirement benefits payments to individuals including Medicare benefits, food assistance, unemployment insurance payments, student financial aid, and other assistance payments. Medicare accounts for nearly two- thirds of these payments.
- Grants including funding to state and local governments for a variety of program areas such as health care, transportation, education, and housing, as well as funding for individuals and other nonfederal entities, such as research grants. Medicaid grants to states account for about half of all federal grants.
- Contracts for purchases of goods and services, from military and medical equipment to information technology and catering services. Defense purchases account for more than half of federal contracts.
- Salaries and wages for federal employees. Roughly two-thirds of this spending is for civilians, and one-third is for military personnel.
Based on these criteria, federal spending makes up less than 15 percent of Illinois’ gross domestic product, according to Pew, a figure significantly less than its neighboring states.
But, Ralph Martire, executive director of the Center for Tax and Budget Accountability, an Illinois think tank that focuses on Illinois fiscal issues, says it’s more complex than a simple accounting of “payer” and “taker” states.
“Illinois happens to be a very wealthy state,” Martire said. “We have the twelfth highest GDP per capita; the sixth largest economy of any state; and our median wage is in the top 11 or so. Many of these federal programs are focused on the percentage of your population that is low income.”
A state like Mississippi, according to Martire, gets much more per capita in Medicaid payments from the federal government because a significantly greater portion of its population is low income than that of Illinois.
And, while a low income state receives more from the federal government, it also pays less because of the progressive federal income tax.
“Illinois has significantly more millionaires than Alabama or Mississippi and people at the top of the income ladder pay more into the federal treasury in federal income taxes,” Martire said.
The combination of wealthier taxpayers and many federal programs focused on the poor creates the disparity, Martire said.
If enacted, Foster’s bill would not require any action to level the playing field. “Collecting accurate data on the payer state problem is the first step,” said Megan Jacobs, Foster’s communications director. “Once we have better information on the scope of the problem, we can start to look for ways to close the payer state gap.”
But Martire says a more sophisticated analysis is needed.
“What should probably happen is thoughtful re-evaluation of a lot of these funding mechanisms at the federal level to be sure they are providing adequate resources to states demographically driven needs,” Martire said.