Analysis ranks states by dependence on federal tax dollars

A new WalletHub survey of 2023’s Most & Least Federally Dependent States finds that more red states across the country are reliant on federal funding than blue states.

The study found red states have an average dependency rank of 20.32, compared to blue states at 30.68 on average, with WalletHub analyst Jill Gonzalez detecting what she views as a pattern among the states most in need.

"The states that receive a higher return on the taxes paid are among the most dependent on the federal government overall,” Gonzalez told The Center Square. “Most of them also have a large share of federal jobs and a significant percentage of state revenue is made up of federal funding. Plus, almost all of these states have a low GDP."

As part of their methodology, WalletHub compared all 50 states across metrics that included return on taxes paid to the federal government, federal funding as a share of state revenue and share of federal jobs, with Alaska, West Virginia, Mississippi, Kentucky and New Mexico ranking among the Top Five in federal dependency and New Jersey, Washington, Utah, Kansas and Illinois, some home to the nation’s highest tax rates, being found at the opposite end of the spectrum.

Gonzalez added there are obvious benefits to a state being as dependent as it can be.

"If a state is more federally independent it means it receives less aid from the government,” she said. “That typically means the state is doing better economically and needs less assistance in providing its residents with accessible healthcare and quality education, among other things."

Reasons for a state receiving federal aid range from providing relief from natural disasters and health crises like the COVID-19 pandemic to funding improvements in education, transportation, infrastructure and healthcare.

For states looking to become more balanced in terms of what they take in from the government and generate for themselves, Gonzalez has a bit of advice.

"The states looking to become more balanced in terms of how they sustain themselves should consider and possibly reevaluate their income sources, as well as the way their income is distributed,” she added. “They should be able to maintain a rainy-day fund for periods of economic downturn, while also sustaining investments in things like education, healthcare and infrastructure. Focusing on poverty and homelessness is important as well."