Welfare States: The Truth Behind the Talking Points

This article contains commentary which reflects the author's opinion
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One of the hottest Democrat talking points under the Biden regime is that the blue states “take care” of the red states. The argument they are making is that the blue states, as part of their state budgets, take less of a “share” of federal money than the red states, meaning the red states are “welfare states.” The impetus of this article was a report on Fox News by one of the talking heads, lambasting a conservative because “red states” use up more of the “federal money.” Let’s see how that stacks up.

Source of the Error

This false information starts out where most false information starts: economists. For those of you who do not know, economists are the bastard children of business and liberal arts. The field of economics is equal parts business acumen and “what I wish the world was.” Good economists will tell you the math is limited to lab experiments; bad economists will go on TV and act like statistic poly-variate economic models designed for micro-economic implementation can be speculated across the general population. That is what happened here.

In a very well-written report, Wallethub presented a group of factoids and economic research into a statement. Nothing against Wallethub (they are actually a decent financial site), but just because all the facts are true does not mean that the assertion, when they are conflated, is true. The key error that goes into the analysis is it looks at what is paid federally, to assert what portion of the state government is federal aid. The problem, however, is that it does not look at what the expenditures of the state government are in relation to the amount of money received. This creates an artificial inflation of the “amount” needed to run the state.

The Tax Foundation uses a similar model. Here we see that the percentage of state funding is defined as a raw number (which can be done), but the percentage is not given in the context of how much the state actually spends. Where the Wallethub article then conflates this with per capita income (which is a false conflation); neither site looks at the actual cost of running the state. When these numbers are brought in, the red states show they are taking much less money.

Another popular model being used today is the “per capita” model. This model is useful with newspapers like USA Today. The great thing about the USA Today report is it looks at several variables; the bad thing is that it ranks the receipts on “per capita,” which skews the numbers toward red and blue states having equal outlays.

Truth Behind the Numbers

One thing people need to understand about economics is that the more complex the model, the more the researcher needed to play with the numbers to get the results that she/he wanted. If you see simple facts about the economy, then you can generally believe them 50% of the time. Each time they add another fact or opinion, you are usually seeing someone trying to hide something. For a member of the general public, this can look like “science.” Anyone who works with business numbers knows it as “cooking the books.”

The first thing that we need to look at is cost versus benefit. Even a simple internet search will populate with dozens of articles talking about how California pays more in taxes than it receives in benefits. The same goes for New York and New Jersey (deep blue states) as well. This is where the myth of welfare states begins.

Where it ends is who is paying the taxes the articles are talking about. First, much of the federal tax tab from California comes from corporate taxes. News stations want to stay away from this data because it takes away from the myth. The people of California are not paying more taxes to the feds than other states (per capita), but the business definitely are. This is not because there is a punitive federal tax on businesses in blue states, its just because many of them move there because blue states tend to have a more “malleable” workforce (read: less thinking).

When we look at income tax versus benefits received (personal income tax), most states are pretty level. The big factor is how many people are on assistance. If you look at the top 10 states for people on SNAP (NM, LA, MS, OK, AL, OR, RI, IL, NV, PA) you will see they are split 5 blue, 4 red, and 1 purple (NV). Blue states receive billions more in this aid, but they also have many more people. This is where facts come in; unethical researchers leave out facts like this that support the narrative.

The truth is, most states are getting their fair share and we really do not have any welfare states.

Solving the Problems

Taxation in our country is a problem. Where people in blue states get wound up is that they do pay more taxes – much more actually – because their states charge more money in state income tax. This is a major problem. First, income tax for all but the most useless careers is stupid. It is a stupid idea designed by a drunk that we have suffered through for 107 years. The income tax, both state and federal, needs to go.

“Oh, how will we pay for things?” is the mantra of big government Democrats and Republicans. The state and federal governments have three things they need to take care of: defense (including military, police, and first responders), local infrastructure (all interstate roads should be toll roads), and general welfare (keeping people out of extreme poverty). Education, healthcare, and all other federal programs are luxuries.

As a nation, we need to reduce the size of the government by 60%, at least. If we do this, we can re-write the tax code to make sense. Here are some suggestions that seem to work:

1.) Sales tax – most people should pay a sales tax on the goods they buy. If the income tax is eliminated for most Americans, a sales tax of 16% nationwide and a state sales tax of 6% could keep both the state and federal governments running.

2.) Use tax – if you use a public service, like roads, then you should have a reasonable use tax. This could be a once a year license fee, gas tax, or mileage fee (charging a mileage tax and a license fee is double taxation). It makes more sense that people using the service should be the ones paying for the service.

3.) Wage gap management tax – there should be no income tax for people who make under $1 million a year. Once people break this barrier, there should be stiff taxes that go along with it. I am not a “fair share” person, but I am a realist who realizes if you have a massive wage gap, you are going to have problems.

4.) Deflation tax – a 2% tax on every transaction that is used to pay down the national debt (which will decrease quickly if these items are added). After the national debt is paid down, the money is eliminated each year. Reducing the amount of currency by 2% of the GDP each year will help combat the rampant inflation.

5.) Tariffs – these are to protect the domestic market. If you don’t like paying more for foreign goods, then buy American.

This program, coupled with an end to foreign non-emergency aid and direct subsidies, would bring our budget back into balance within five years. (Assuming we deal with the foreign debt problem effectively.)

The point is, when the federal government is giving nearly half a trillion dollars to foreign countries (over 1 trillion when you factor in our troops guarding other countries), they are taking too much in taxes. We need to break the federal cartel and the state cartels spending too much of our money. Yes, government programs are nice, but when you pay for something yourself, then you have control over where your money goes.

Author Profile

Dr. Christopher W. Smithmyer
Dr. Christopher W. Smithmyer
Dr. Christopher Smithmyer is a writer for NRN, the Vice President of International Affairs at Brav Online Conflict Management, and an Adjunct Professor of MBA Business at Doane University. He is also part of the founding team at BlackWalletLTD, one of the leaders in stable coin 2.0 ecosystem maintenance. Dr. Smithmyer’s focus is international business and finance, along with reviews of board games, weapons platforms, and survival items.