From Catalonia in Spain to Canarsie, Brooklyn, from America’s capitol on the Potomac to the heartland of America the questions of the modern welfare democracies are always the same: Who pays for it all? And how much?

Welfare democracies, with lots of entitlements, cost huge amounts to keep going, with many groaning taxpayers working extra jobs to maintain a decent standard of living. This is one reason why, for example, Spain might be coming apart. One of its most prosperous regions, Catalonia, has many people who believe they are being played for suckers; that they contribute to the national economy in taxes and don’t get nearly enough back in services.

“Thank God We Can Milk New York,” Feds Say

This is what many New Yorkers believe about their relationship with the central government.

They think that much of the rest of the country looks at New York as a Milch Cow.

That’s because Empire State taxpayers are milked more than taxpayers in any state.

They send more money to Washington and receive less in federal programs than any state, according to a Rockefeller Institute of Government report. The numbers were certified by a state official.

“Forty states have a positive balance of payments, meaning that they receive more from Washington than they contribute in taxes, but New York is on the extreme other end,” writes New York State Budget Director Robert Mujica.

New York’s Red Ink

No state comes close to New York’s red ink, according to the report, “Giving or Getting: New York’s Balance of Payments with the Federal Government 2019.”

“The governor has been upset about this and has been fighting it for years,” said a spokesman for New York Governor Andrew Cuomo.

“The results are stark. The state’s massive negative balance of payments for 2017 of -$35.6 billion ranks it the worst in the nation,” the report said.

“In fact,” the report continued, “New York’s gap in 2017 is almost as large as that of the next two states—New Jersey (-$21.3) and Massachusetts (-$16.1) —combined. This worst in the nation rank remains the same as it was in 2016.”

The negative number is $1,792 per New Yorker.

Less in Services, More in Taxes

The report said New York’s huge federal payments deficit is because it receives less in federal programs than others but also pays a big federal tax bill.

“New York’s consistently negative balance of payments is driven primarily by the disproportionate amount of Federal taxes paid, rather than relatively lower Federal spending received,” the report said.

Payments received from New Yorkers were on average $12,906 in 2017, some $3,375 higher than the national average. Average federal spending per person in New York was some $342 lower than the national average, according to the report.

This negative payment situation has existed for decades. New York Senator Daniel Patrick Moynihan, who retired in 2001, focused on the issue. His annual report “highlighted New York’s balance of payments deficits with Washington,” according to the Empire Center, an Albany think tank.

How Does the Milking Happen?

New York’s payments imbalance is partly structural, notes Laura Schultz, an author of the Rockefeller Institute report.

“We have a progressive tax system and I don’t see it changing,” she says.

A progressive tax system, explains a spokesman for the Tax Foundation, means “states with larger low-income tax revenues will naturally receive more federal aid per dollar contributed in federal tax.”

Could the problem be corrected or moderated?

Possibly, the federal government, in trying to be fairer, might move more federal offices or military bases to New York, Schultz said.

Still, she added that owing to recent tax changes reducing the ability of taxpayers in high tax states to deduct state taxes on federal tax returns, New York will continue to lose with Washington.

Same Time Next Year

Shultz predicts New York will still be the worst next year. But finally the issue is also one that many New York lawmakers, who are mostly Democrat, don’t want to discuss: Why aren’t they better at protecting New York’s interest and bringing home more federal pork?

For many of them, they say it’s all the fault of a Republican president.

Blame it on President Trump and his tax code changes.

That was the explanation of some senior federal lawmakers on why New York gets milked.

“New Yorkers all over the state are suffering the consequences of the Republican tax cuts and President Trump’s irresponsible budget,” according to U.S Senator Kirsten Gillibrand. She said the reduction of state and local tax deductions “is hurting hardworking homeowners who play by the rules.”

Long Island Republican Congressman Peter King says the payment deficit is because of “fund formulas that were put in place when the southern states were impoverished.” King agrees that new tax rules will hurt New York.

No Time for You

Neither Senator Chuck Schumer nor Representative Jerrold Nadler responded to requests for comment. I am not surprised that many federal lawmakers were in no hurry to answer my questions (I called them because I was recently working on a story for the New York Post).

While the recent federal tax changes certainly hurt New York and other states with high local taxes, there is also another disturbing factor that most lawmakers don’t want to consider.

This payments imbalance has been going on for decades under presidents of both parties. So it didn’t begin with President Trump, although one could argue that it has been made worse.

A big part of the problem is New York is a high tax state that doesn’t seem to get its fair share of federal largesse. The latter is a reflexion on New York’s federal lawmakers, who don’t seem to be as effective as federal representatives from other states in bringing home the federal bacon.

A Payments Deficit Example

But there is another factor: Our high local taxes seem to compound the problem. Say a New Yorker pays into Social Security for 40 or 50 years. Payments are going from New York to the federal government. But now he or she retires. The reverse happens. Now money flows to that person, helping to boost the local economy.

But here’s the problem: Many of those New Yorkers, when they retire are no longer New Yorkers. They move to places such as Georgia or Florida. The payments imbalance gets even bigger.

That is a problem that nothing to do with Trump. It is our mess caused by high local taxation and we should clean it up.

How?

Less spending and much less taxation.


Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. His latest book "MoneySense" is available on Amazon. Got a question, comment, or anything else you'd like to provide? You can contact Gregory at: gbresiger@hotmail.com

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