There exists a commonly held belief that big cities, especially those thought of as liberal cities like New York City, Chicago** and Philadelphia, use more than their share of tax revenue. Is it true. Probably not. First, in a report summarized by Joseph Spector (the full report from the Rockefeller Institute is available at the link) we see that NYC pays more in taxes than it receives in payments from the state.
If New York City’s share of tax expenditures had been the same as its share of revenue, the city would have received $4.1 billion to $6.1 billion more than it
did, the report concluded.
The New York City suburbs would have gained even more—between $4.6 billion to $7.9 billion—if the taxes and revenue were proportionally divided.
As a result, the rest of the state would have lost between $8.1 billion and $9.3 billion, while the Capital region would have lost an estimated $2.7 billion, the report said.
Next, we find that a study in the Indiana Business Journal finds similar results.
A study released Tuesday morning by the Indiana Fiscal Policy Institute shows residents in metropolitan counties subsidize their rural counterparts by paying more in state taxes than they receive in benefits.
While the results may not be unexpected, they demonstrate for the first time in Indiana the disparity in state tax collections and distributions among urban and rural counties, IFPI President John Ketzenberger said.
“The outcome is not surprising, but it does show what has long been suspected,” he said. “And there’s some value in that.”
Overall, taxpayers in 46 metropolitan counties paid 82.5 percent of the taxes, or $11.3 billion, and received 76.7 percent, or $10.5 billion in expenditures, the study said.
The disparity is equally pronounced in the 10-county Indianapolis metropolitan area. Residents there paid 33.5 percent, or $4.6 billion, of total state taxes and received 28 percent, or $3.8 billion, back.
Still, William J. Rieber, an economics professor at Butler University’s College of Business, said the method in which states distribute tax dollars is justified.
“Rural areas don’t have the same infrastructure as urban areas do, so they often need additional help(Bold mine. Ed.),” Rieber said. “To some extent, we’re in the same state, and we’re all in this together.”
What about federal taxes and spending? We know that blue states tend to subsidize red states, as noted in aReason article by Veronique de Rugy. Since most income, and therefore taxes, come from their large cities, I suspect that those cities are net tax exporters, especially if you include corporate taxes. However, I will continue to look for further data, and if anyone has some to add, feel free.
** I have asked an acquaintance who is expert on all things Chicago to see what he can find for that city.