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.
Thanks Steve. I’ll keep looking too. I suspect many of the city-provided subsidies are paying for roads and other infrastructure. I’m more interested in the blue-to-red state transfer. Part of it might be social services but I imagine much of it is for industrialized food. Oh wouldn’t it be funny if the Republican agenda of ending redistribution of wealth actually happened – the joke would be on them.
The report you cite is an overly simplistic analysis which is misleading as there are many other factors involved in tax levies and where the money eventually goes.
As Saratoday commented, some of these “city-provided subsidies” are in actuality “paying for roads and other infrastructure” in rural areas. That infrastructure is required to allow these cities to even exist, so while the flow of money may appear to go one way, it may be mutually beneficial to both communities.
One quite obvious example that is never factored into these type of analyses is the cost of city operating infrastructure on rural residents, such as land for reservoirs. One might say that taxes paid by the city on the land may be an outflow to subsidize the surrounding rural communities, however many experience higher tax rates imposed on local residential properties by valuation assessments than surrounding villages outside the watershed. There is also the loss of use of the land in terms of opportunity costs which may be denied for more highly profitable activites and also the costs of regulation to protect the watershed on the surrounding properties thus limiting their use.
Another one is the mistaken assumption that farm subisidies benefit development of rural communities when much of that goes to large corporate farmers and not to small family farmers and their local communities. Your analysis may show money flow going from city to country, but who knows exactly where it really goes?
Heck, just look at the debacle with Bruce Springsteen and Jon Bon Jovi getting “farm subsidies” in the form of lower taxes on their country holdings while their neighbors are paying through the nose to hold onto their houses. I’m fairly sure in the analysis you cite it would show up as a net outflow from urban areas when in reality the reverse is true.
Interesting topic, and I’m glad you see it requires a lot more research before jumping to a simple conclusion as to who benefits most. Good luck.
You make some good points. On the other side, it is cities that maintain the large hospitals needed for advanced care to which rural patients get sent for major care. When I scan through state databases, I find that cities and rural areas usually have about the same poverty rates, but city wages are higher. This kind of points towards cities being net exporters of taxes, but it misses a lot of stuff. I will keep looking hoping that someone has attempted a more comprehensive study.
Steev
Another one is the mistaken assumption that farm subsidies benefit development of rural communities when much of that goes to large corporate farmers and not to small family farmers and their local communities.
I don’t think for a second that farm subsidies are primarily for the benefit of rural communities. But that’s what the zip code shows.
You’re ahead of the game, Sally, for unfortunately most do not.
Seriously though, I see Steve thirsts for more analysis, but appears to be hoping for that which affirms a hypothesis that redistribution flow goes from urban to rural or blue to red. I’m sure he can find plenty of that and a relative lack of the opposite. For most are seriously deficient in only following “what the zip code shows” in money flows. Finding that the money flow indeed goes that way may be singling out a symptom rather than properly diagnosing the underlying disease.
Perhaps this should be looked at in a different way than number based analyses. Can one imagine if all governmental redistributions ceased today (along with all the regulatory restrictions placed upon them) that the viability of rural communities would simply dry up and whither away hastening the demographic shifts from rural to urban, or could the rural to urban population shifts reverse and they start to grow after becoming economically independent of a system which tells them what they may or may not do offering paltry substitute redistributions to maintain that power?
A strong central government doesn’t want a decentralized population or a largely independent small-business based economy for they lose an enormous amount of power to control.