What If Taxpayers Could Choose If Taxes Went To The State Or Federal Level?

Authored by Ryan McMaken via The Mises Institute,

In recent years, we've examined any number of ways of decentralizing the American political system. These step-by-step moves can include decentralizing the monetary system, decentralizing the military, decentralizing immigration policy, and decentralizing elections.

Most recently, we looked at decentralizing the welfare state, and found that each US state is more than wealthy enough and big enough to run its own welfare state at the state level without any need of planning or centralization through Washington, DC. Whether or not one thinks a welfare state is a good or necessary thing, the fact remains the US government is not an essential part of the equation.

One piece of information that stood out the state-level analysis of tax revenue: the amount of taxes collected by the federal government far outpaces that collected at the state level. Nationwide, state-level tax bills are 28 percent the size of the federal tax bill. In a midsize state like Georgia, for example, residents pay 21 billion in taxes to the state government. However, those same residents pay a total of 86 billion to the federal government. The federal tax bill for Georgians is more than four times the size of the state tax bill.


Let's look at it another way: 

Of all the state-level and federal-level tax money squeezed from Georgia residents, only 19 percent of it goes to the state government. 

In the second graph, we can see how much of the tax revenue produced by each state's residents (in dollars) go to either state or federal levels.


Hawaii, for instance, tops the list with 45 percent of all its tax revenue going to the state. At the other end of the list is Delaware where only 13 percent of the total tax revenue is going to the state of Delaware. (This excludes local taxes.) At the national level, 22 percent of all revenues collected — by either a state government or the federal government — go to the states. 

This could be due to several things. In states where a high percentage of tax revenue goes to states, this may be due to low incomes, since federal revenues are heavily dependent on wages and income. A low income state may nevertheless collect state level sales taxes, property taxes, and other taxes. This may then drive a relatively high amount of tax revenue to the state. This may very well be the case in West Virginia, New Mexico, and Mississippi where incomes are relatively low. 

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