California Institute Special Report:  California’s Balance of Payments with the Federal Treasury, Fiscal Years 1981-2003

 

The California Institute for Federal Policy Research, 419 New Jersey Avenue SE, Washington, DC 20003

Phone: 202-546-3700     Fax: 202-546-2390     ransdell@calinst.org     http://www.calinst.org

 

 

In fiscal year 2003, Californians’ tax payments to the federal treasury exceeded federal spending in the state by $50 billion, a record high.  Much of that discrepancy, however, may be attributed to demographic factors such as youth and wealth.  For every tax dollar paid by Californians in 2003, the federal government spent 79 cents for grants, wages, contracts, retirement benefits, etc.  It was California’s 18th year in a row as a net donor state.

[PLEASE NOTE:  This document incorporates recent changes to California’s federal tax burden data and balance of payments data for fiscal year 2002 and prior.  Updated federal tax receipt records from Californians were lower than previously reported by the Tax Foundation for 2002, so the state’s spending imbalance for that year has been corrected from a $58 billion shortfall to a $45 billion shortfall and from a 77 cents per tax dollar shortfall to 81 cents for 2002.  The 2003 shortfall was 79 cents – which now constitutes a new low and a 2 cent drop from the year before.  For details, see the Source Data section below.]

The Balance of Payments between California and Washington

In 2003, Californians sent $50 billion more to Washington in federal taxes than the state received in federal expenditures.  Representing a slight increase from levels that have held steady for three preceding years, the Golden State’s imbalance set a new record for any state, surpassing the previous mark (set also by California, in 2000 and 2001) of $48 billion.

To a large extent, however, two demographic factors help explain California’s spending versus taxing shortfall.  (A third key factor, declining contract and defense spending, is discussed later.)  First, state residents’ income levels exceed the national average, yielding above-average income tax receipts – an effect amplified by the progressive nature of the federal income tax system.  Second, and more significantly, California’s population is considerably younger than average.  Thus, the state houses fewer recipients of Social Security and Medicare payments –  parts of a fast-growing budget sector that now accounts for nearly half of the nation’s total federal expenditures.  Because of these two demographic influences, California’s status as a donor state should be expected to some degree.

The Imbalance in Context:  A Chronology

It has been many years since California’s federal spending relationship was in surplus.  The defense buildup during Ronald Reagan’s first Presidential term in the early 1980s kept the state’s balance of payments solidly in the black for six straight years.  During the six years between 1981 and 1986, federal expenditures in California exceeded federal taxes paid by a total of $16 billion – with a single-year high-water mark of a $4.6 billion surplus in 1984.

As defense procurement began to wane in the mid 1980s, however, California’s federal funding advantage declined, and the state’s balance shifted into the red in 1987 and has remained there ever since.  By 1990, California had erased the inflows of the early 1980s, and the 17-year combined deficit tally since 1987 has now grown to $363 billion.  During the recession of the early 1990s, the state’s balance figure recovered somewhat, dipping from a $14 billion loss in 1991 to just a $4 billion shortfall in 1994.  But the retreat was short-lived, and deficits rose sharply after that; the imbalance leapt by an average of $7.4 billion each year for six years, reaching $48 billion in 2000 and remaining near that mark today.

The Imbalance in Context:  California’s Return on the Dollar

The taxing-versus-spending imbalance means that every California man, woman, and child paid $1,409 more in federal taxes in 2003 than he or she received in federal funds and services.  The per capita discrepancy was the state’s second highest on record; the 2000 amount was slightly more – $1,423.

Put slightly differently, California received 79 cents in federal payments and services for every dollar sent to Washington.  The “return on the dollar” figure represents a decline from 98 cents in 1994 and 90 cents in 1998, and it is a record low return for the state.

The balance of payments figure is calculated by comparing federal spending attributable to each state (excluding spending in territories and non-allocable costs such as intelligence, overseas operations, and interest on the national debt) against federal tax and fee revenue dollars collected by states.  The tax burden figure is then adjusted to provide an "apples-to-apples" comparison between the two numbers.  For more details, see Methodology, below.

The state’s return on investment has edged downward for two decades.  During the early and middle 1980s, California received back more than a dollar for each tax dollar paid, reaching an apex of $1.06 in 1983-84.  The return fell below $1 in 1985, bottomed out at 89 cents in 1990, rebounded to 98 cents in 1994 (the year of the Northridge earthquake and the trough of the state’s recession), and has fallen steadily since then.

Yet California is not the worst off among the states.  California ranks 45th out of 51 states plus D.C. in balance of payment returns.  In 2003, New Jersey ranked lowest, receiving just 58 cents for each dollar paid in.  (Other states with the most significant balance shortages included New Hampshire (65 cents), Connecticut (67 cents), Minnesota (69 cents), Nevada (70 cents) and Illinois (72 cents).

Not surprisingly given its concentration of federal facilities, the District of Columbia displayed by far the highest return, $6.59 per dollar in 2003.  Excluding the District of Columbia, New Mexico ranked first with a balance of $2.00 in returns for every dollar paid to the federal government.  The next largest returns per dollar were in Alaska ($1.90) and Mississippi ($1.83).

[As noted above, the Tax Foundation recently corrected tax burden statistics for several past fiscal years, including 2002, to accommodate revised IRS data.  As a result, the 2002 return to California per dollar of taxes has been changed from the previously-reported 77 cents to a new amount of 81 cents.  For details, see Source Data, below.]

Components of the Balance of Payments Deficit: California’s Share of Population, Federal Tax Burden, and Expenditures

Two primary factors comprise the balance of payments: taxes and expenditures.  In addition, to further explore equitability, this report includes the state’s share of the U.S. population as an illustrative benchmark.  In 2003, California housed 12.2 percent of the nation’s residents, paid 13.4 percent of federal taxes and received back 10.9 percent of federal payments and expenditures.

Population

California is home to nearly one in eight Americans.  In sharp contrast to steep population increases during the 1980s – when California’s share of the national population rose from 10.5 percent in 1981 to 12.0 percent in 1990 – throughout the 1990s the state’s share remained relatively stable.  In recent years, California’s share of the nation’s population has been rising slowly, from 11.9 percent in 1996 to 12.2 percent in 2003.  A number of federal grant programs distribute funds to state and local governments based in whole or in part on population data.  Some have argued the existing methodology for collecting census population data that avoids using statistical sampling methods for estimating population totals, fiscally disadvantages California and other rapidly-growing urban and poorer states.

Federal Taxes

At 13.4 percent, California’s share of the nation’s $1.75 trillion tax burden remained relatively stable for the third year in a row in 2003.  The state’s percentage share had been between 12.3 and 12.6 percent for six years, between 1994 and 1998.  It then rose sharply for two years – peaking at 14.0 percent in fiscal year 2000 – before falling back to 13.6 percent in 2001 and 13.4 percent in 2002 and 2003.

The recession during the early 1990s affected California’s economy more profoundly than that of most other states, and the state’s relative share of federal income tax contributions declined from 1991 through 1995.  (Despite the state’s economic woes, however, California remained a donor state with respect to the rest of the country throughout the period.)  Before the recession, from 1987 through 1991, California’s share of federal taxation had again held steady somewhat above 13 percent, the same level as today.

As has been true for more than half a century, California’s $235 billion contribution to the federal treasury in 2003 was by far the largest federal tax-dollar total of any state, according to the Tax Foundation, well above both New York’s $145 billion and Texas’s $122 billion.  Most states and the nation as a whole experienced a substantial reduction in federal taxes between 2000 and 2003.  The nation’s total tax burden reached a high of $1.98 trillion in 2000, and declined 12 percent to $1.75 trillion in 2003.  Likewise, after spiking to $277 billion in 2000, California’s tax burden declined 15 percent to $235 billion in 2003.

(Although this report focuses on 2003 because that is the most recent year for which comparable spending data are available, the Tax Foundation also estimated the federal tax burden by state for Fiscal Year 2004.  It predicted that California’s 2004 tax burden will amount to $249 billion, 13.5 percent of the nation’s $1.84 billion total.)

Federal Spending

Total federal expenditures in California rose to $220 billion in fiscal year 2003, a 6 percent increase from 2002, according to the U.S. Census Bureau’s Consolidated Federal Funds Report for fiscal year 2003.  Calculated as a percentage of the $2 trillion total that the U.S. government spent in all states, California’s share of federal expenditures declined slightly to 10.9 percent in 2003 from 11.0 percent in 2002, largely because procurement spending grew more rapidly in other states.

For much of the past decade, California’s share of federal spending has changed little.  After rising from 12 percent in 1981 to 13 percent in 1984 – propelled largely by military procurement contracts won by California’s aerospace industry – federal spending in the state gradually declined to the 11 percent range by the late 1990s.

Federal Taxation and Spending Per Capita

In 2003, the federal government spent a total of $6,192 per capita in California, compared to $6,910 per capita nationwide, a spending shortfall for the state of 12 percent.

On the taxation side of the ledger, Californians paid in $6,611 per capita to the federal treasury, compared to a national average of $6,011 per capita, or a discrepancy of 9 percent.

The 2003 spending discrepancy was larger than any recorded year except 2001, and the federal tax discrepancy was the largest since data collection began.

(Please note that due to adjustments, subtracting taxing amounts from spending amounts per capita will not yield a relevant balance figure.  For details, see Methodology, below.)

Broad Categories of Federal Spending

The Census Bureau divides federal spending into four primary components – procurement, direct payments, salaries and wages, and formula and other grants to states and local governments.  California’s share of federal procurement spending declined sharply, to 12.6 percent in 2003 from 13.7 percent in 2002.  Direct payments in California edged upward slightly to 10.3 percent of the nation’s total, remaining near the proportion that the state has maintained for several years (the long-term trend has been slowly downward for a decade). Federal salary and wage spending in California remained flat at 9.9 percent, holding below the 10 percent threshold for the fourth year in a row. And California’s share of federal grant program expenditures (including formula grants) held steady at 11.8 percent, below the state’s percentage of the total U.S. population.  Each of these four categories is discussed in greater detail below.

Procurement

Resuming a downward trend that has persisted for 20 years, California’s share of federal procurement (which includes defense and other contract spending) declined to 12.6 percent in 2003.  In the same year, the nation’s procurement spending leapt from $254 billion to $294 billion, an increase of nearly 16 percent from 2002, whereas spending in California rose from $35 billion to $37 billion, less than half as rapidly.  For the first time since 1986, the state’s total federal procurement expenditures exceeded the state’s previous high-water mark of $35 billion.  (Were those dollars adjusted for inflation, however, the state’s receipts would remain well below that threshold.  After adjusting for inflation, California’s procurement awards are now roughly half of their 1985 levels.)

 

For the past two decades, no category of federal spending has declined more precipitously in either spending or California share than procurement.  By 1998, federal procurement expenditures in California had fallen dramatically to $25 billion, the lowest level in current-dollar terms since 1981.

Declining contract expenditures by the Department of Defense, which spends two of every three federal procurement dollars, accounts for much of the reduction.  California’s share of total U.S. procurement expenditures (defense and non-defense combined) held nearly steady at the 18 percent mark for a decade before declining to about 15 percent for 1995-97, and now has been below 14 percent for five years.  California’s share of procurement spending for national defense was once as high as 23 percent, in 1984, when the Department of Defense spent $29 billion in the state.  In 2003, continuing the slow but steady decline that has persisted for nearly two decades, the state received just 14.2 percent of defense contracts, $26 billion of the $201 billion total distributed nationwide.  (The state’s share of all defense spending, including contracts and other categories, was 13 percent, $39 billion of the nation’s $320 billion.)

Direct Payments

Representing nearly half of total federal expenditures and more than $1 trillion annually, the direct payments category is comprised of Social Security, disability, retirement and other payments directly from the federal government to individual recipients.  Roughly half of direct payments come in the form of Social Security checks, while another 20 percent are Medicare payments.

Federal spending for direct payments, both in California and nationwide, has increased every year for the past two decades.  Californians’ share of direct payment dollars remained relatively constant throughout the early and mid-1990s, roughly tracking California’s share of the nation’s older population.  Recently, that share declined from 10.7 percent in 1997 to 10.1 percent in 2001, and then rebounded to 10.3 percent in 2003.

Direct payment expenditures in California rose from $91 billion in 2000 to $111 billion in 2003, and the state’s share of the national total increased slightly, to 10.3 percent.  This percentage growth marks only the second time California’s share of such payments has increased in the past decade.

Nationwide, direct payments from the federal government continued to grow, rising from $260 billion in 1981 to $1.1 trillion in 2003.  Last year alone, direct payments expenditures nationwide rose by $50 billion compared to the amount in 2002.  The $110 billion received by Californians in 2002 is more than four times the $26 billion received in 1981.

Grants

The bulk of federal grant spending is distributed to states by congressionally designed formulas, often based on population, income, poverty, and similar data.  (Formula grant program spending represents approximately 85 percent of the grants category; the remainder is spent on competitive or project grants.)

Of total grant payments to states – comprised primarily of federal formula grant expenditures for such programs as Medicaid, highways and transit, welfare, education assistance, and nutrition programs – California’s overall receipts rose from $48 billion to $51 billion, and the state’s share of the nation’s total remained unchanged at 11.8 percent in 2003. Grant expenditures in all states continued to increase steadily, from $364 billion in 2001 to $407 billion in 2002 and $435 billion in 2003.

After holding steady in the 1980s at 10.5 percent of the nation, California’s share of federal grants to state and local governments rose sharply to nearly 13 percent in 1994. The share of grant spending then fluctuated for several years between 12 and 13 percent, before settling below the 12 percent mark.  More than 60 percent of the nation’s $435 billion in 2003 grants funding was distributed pursuant to four programs: Medicaid, highway planning and construction, welfare, and Title I education grants.

In 2003, federal Medicaid distributions to states from the Centers for Medicare and Medicaid Services for Medicaid grants totaled $169 billion, and California received $18 billion or 10.6 percent of the total.  In 2002, the state received $15.4 billion, or 10.4 percent, of the $148 billion U.S. total.  And in 2001, California’s Medicaid receipts amounted to $14.1 billion, or 10.6 percent, of the $133 billion distributed nationwide.  The state’s current percentage share is currently slightly more than the approximately 10 percent share received throughout the preceding decade.  California’s share of Medicaid funding has long been reduced by the use of a per capita income factor in the “FMAP” (the Federal Medicaid Assistance Percentage in the Medicaid formula), which shifts funds to states with below-average income.  California’ youthful population, moreover, keeps the state’s Medicaid expenses somewhat below the national average – older enrollees, particularly those in long-term care, tend to be associated with considerably higher costs per patient.  New York, on the other hand, with a population only two-thirds of California’s but with a larger proportion over age 65, received $4 billion more in federal Medicaid funds in 2003 than did California.

With regard to transportation funding, for many years, California has received fewer highway planning and construction funds than the state’s motorists have paid into the highway trust fund in gasoline taxes, and the states’ share of highway money remains relatively low.  In 2003, California received $2.2 billion in highway planning and construction funds out of the $29 billion distributed nationwide, or approximately 7.6 percent of the U.S. total.  The state received slightly more than 9 percent of federal highway grant funding over the life of TEA-21, the transportation law that authorized funds from 1998 through 2003.  The state’s low highway funding share is mitigated somewhat by the state’s relatively large share of the federal transit budget.  In 2003, California received $756 million, or 14.8 percent, of the $5 billion distributed nationally under federal transit formula grant programs.

When the 1996 federal welfare reform law replaced the Aid to Families with Dependent Children entitlement program with the Temporary Assistance for Needy Families (TANF) block grant, California was home to 21.7 percent of the nation’s adult welfare recipients.  With that figure locked in, the state has continued to receive the lion’s share of the nation’s welfare spending ever since 1996.  Although total national expenditures for federal highway programs ($29 billion in 2003) are greater than for welfare ($17 billion), California received more in federal welfare payments ($3.7 billion) than in payments under the highway program ($2.2 billion).  As has been the case since welfare reform’s enactment, California in 2003 received nearly 22 percent of the nation’s expenditures for TANF’s State Family Assistance Grants.

In fiscal year 2002, California received $1.4 billion (or 14.6 percent) of the $9.6 billion distributed nationwide from the Title I Education for the Disadvantaged program, the federal government’s largest K-12 education grant.  This percentage reflects the continued growth in the state’s share of Title I from an 11 percent average during the 1990s.  The program is authorized under the No Child Left Behind Act.

For Special Education Grants to States, funded pursuant to the Individuals with Disabilities Education Act (IDEA), California received $863 million (10.7 percent) of the nation’s $8 billion in 2003 distributions.  The state’s share has increased since a formula change, instituted largely because of efforts by the California Congressional delegation, began to operate in FY 2000.

For further California-focused information regarding formula grant programs, including in-depth analyses of the highway and welfare programs, consult Federal Formula Grants and California, a joint project of the Public Policy Institute of California (PPIC) and the California Institute for Federal Policy Research, at http://www.calinst.org/formulas.htm .

Salaries and Wages

      In the fourth major category of federal spending, California’s share of salaries and wages paid to federal employees remained just below 10 percent of the U.S. total.  Total federal salary and wage spending in the state has risen from $19 billion in 2002 to $21 billion in 2003, keeping pace with a similar increase nationwide.

California’s federal salary and wage levels have been pushed downward by employment reductions associated with military base closures.  Prior to the shuttering of a number of military installations, ordered by base closure rounds in 1988, 1991, 1993, and 1995, California’s share of federal salaries and wages had peaked in 1986 at 12.6 percent of the nation’s total.

Despite the fact that the state housed just 15 percent of military personnel before the closures began, California was called upon to shoulder 60 percent of the nation’s net personnel cuts ordered by those four base closure rounds.  After a 10-year hiatus, the Department of Defense plans to conduct a military base closure round in 2005.  Recent statistics estimate that California houses nearly 300,000 military and civilian DOD personnel, with a total payroll of approximately $10 billion.

 

Spending Within California

California’s 15 largest counties house 83 percent of the state’s population – and a proportionate share of most federal spending categories – although they accounted for 94 percent of the state’s procurement receipts in 2003.  Not surprisingly, federal receipts vary greatly from county to county.

Whereas Los Angeles County’s $57 billion in federal receipts represented more than 25 percent of the state total, per capita federal spending in Los Angeles County ($5,728) was below the average for both the state ($6,192) and the nation ($6,910).  Per capita federal receipts in the largest counties ranged from a high of $11,150 in Sacramento County to a low of $3,943 in Riverside County, $4,105 in San Bernardino County, and $4,205 in Orange County. (Because of the presence of the state government, $8.8 billion in formula grant spending was attributed to Sacramento County, thereby artificially inflating its total.  Many of the grant dollars initially distributed to Sacramento County are subsequently redistributed to other parts of the state.)

Other large counties with relatively high per capita receipts in 2003 included San Francisco, at $9,547, and San Diego, at $8,204.  San Francisco’s high receipts are likely attributable to federal grants receipts and federal wages, both of which are more than double the state and national averages.  In San Diego, high receipts are associated with strong procurement receipts and with very strong salary and wage performance, related to the area’s major military presence.

In addition to Riverside, San Bernardino and Orange Counties, relatively low per capita federal receipts were logged in the Counties of Sonoma ($4,369), Contra Costa ($4,317), San Joaquin ($4,228), Stanislaus ($4,157), and Tulare ($4,182).

An attached table shows total and per capita federal spending, as well as amounts for the four primary spending categories, for all 58 California counties.  The table is also available on the California Institute website, www.calinst.org .

 

Factors that Contribute to the State’s Shortfall

A variety of factors likely contribute to the widening of the state’s taxes-versus-spending disparity; three stand out as key drivers: age, income, and reduced defense spending.

First, as discussed previously, California is a relatively young state and thus has fewer residents receiving payments under Social Security and Medicare, which constitutean increasingly large slice of the federal budget pie.  According to the U.S. Census Bureau, 10.6 percent of Californians were age 65 or older in 2003, compared to 12.4 percent of all U.S. residents – as such, California had the 6th lowest percentage of its population over the age of 65.

Second, California remains a relatively prosperous state.  Despite economic downturns in the early 1990s and this decade, incomes of California’s residents remain above the national average.  Thus, the state’s residents pay proportionally more in federal income taxes under a progressive tax system.

Third, a key non-demographic factor in California’s ongoing funding disparity is the state’s slippage over the past 20 years in federal defense spending, including both contract procurement and military and civilian wages and salaries.  The nation’s total defense contract spending had fallen from $123 billion in 1991 to $108 billion in 1998 (a drastic drop-off even before accounting for inflation) but expenditures then began a rebound that reached $183 billion in 2003.  California’s defense procurement funding, on the other hand, experienced a faster fall and a slower recovery – dropping from $23.6 billion in 1991 to $17.3 billion in 1998, and climbing back only as far as $17.9 billion in 2000 before three growth years brought the 2003 total to $26 billion.  Whereas the early 1980s saw nearly one-fourth of defense contract dollars spent in California, the state’s share fell to a record low 14.2 percent in 2003.

A review of total dollars spent on defense – procurement and otherwise – yields even more dramatic findings.  From 1981 to 1985, California and the nation followed a similar path – total DOD expenditure increased by 50 percent in both the state (from $25.6 billion to $41.2 billion) and the nation (from $147 billion to $218 billion).  The similarities end then, however, with the nation’s total spending remaining level and California’s dropping sharply.  Whereas the nation’s total distributed defense spending remained level for 15 years (deviating no more than 6 percent from the 1985 amount), spending in California retreated sharply, with spending in 2000 ($29.3 billion) nearly 30 percent less than in 1985 ($41.2 billion).  For the last three years, defense spending has grown rapidly in both the state and the nation.  However, whereas the nation’s total has ascended to new heights ($301 billion in 2003), even three years of defense spending growth in California has still not restored California to its previous high-water mark.  At $39.2 billion in 2003, total federal defense spending in the state remained $2 billion below the comparable figure from 18 years prior.

Despite the state’s taxes-versus-spending disparity, some opportunistic legislators from other states may charge that California receives too much from Washington.  Half again larger than any other state, California presents a natural and large target for prospective opponents.

Moreover, some competitors for scarce funding may persist in portraying California as a disproportionately successful siphon from the federal treasury.  To whatever extent that perception may ever have been valid, it certainly is no longer.  As has been the case for more than a decade, California subsidizes the rest of the nation at unparalleled levels.

Methodology

The federal government generally operates in surplus or deficit, so national totals for expenditures and tax burden rarely match.  Thus, this paper adjusts each year’s tax burden figure to equalize it with spending, thereby controlling for deficits or surpluses and deriving California’s appropriately comparable share of tax burden.  The adjusted tax burden is then subtracted from adjusted spending to derive the balance of payments.

For example, without that adjustment, California’s raw (unadjusted) balance of payments deficit for 2000 was $101 billion, instead of the adjusted $47 billion.  (Since there was a budget surplus in 2000, the adjustment recognizes that even the average state paid somewhat more in taxes than it received in spending.)  This adjustment operated in reverse in 2003 – a deficit spending year for the nation as a whole – when California’s unadjusted balance of payments was $15 billion, whereas the adjusted balance was $50 billion.  (Likewise, in 2003 the adjustment lowered the state’s return per dollar of taxes from 94 cents to 79 cents.)

In addition, this paper adjusts the Census Bureau’s expenditure data by deleting spending for territories as well as for undistributed federal funds (those appropriated but not spent) in order to facilitate comparisons among states.  For example, the Census Bureau’s total for all federal grant spending is $441 billion, whereas this report’s states-only total for consistency purposes is reduced to $435 billion.  The adjustment is most pronounced in procurement, where more than $30 billion is categorized as undistributed.  (In addition, procurement contracts under $25,000 are not tracked by state, and some defense spending is not tracked by geography.)  This report thus reduces the Census Bureau report’s $327 billion procurement spending total for the U.S. to a total allocable by state of only $294 billion.  As a result, the Census Bureau figures show California receiving 11.3 percent of total procurement contract expenditures, whereas this report shows the state receiving 12.6 percent of procurement spending allocated to the states.  Likewise, the Census Bureau shows California receiving 10.7 percent of total spending, whereas this report’s adjustments yield a slightly larger 10.9 percent return.

In addition, it may be helpful to remember that federal tax burden figures for each year largely reflect the economic condition of the prior year -- i.e., in 2003, California taxpayers paid taxes primarily on their 2002 earnings.

The federal income tax system causes states with above-average incomes, such as California, to pay more in taxes than the average state, despite the fact that vastly higher housing prices and other costs of living mean that the average Californian may actually have considerably less disposable income than the average resident of a lower-taxed state.  An annual salary of $60,000 in, say, Arkansas or South Dakota affords a vastly different buying power and standard of living compared to the same salary in Santa Clara or Orange Counties, yet federal income tax rules treat such taxpayers identically.

Source Data

Data sources for this document include the Consolidated Federal Funds Report (U.S. Census Bureau, Washington, DC, http://www.census.gov/prod/2004pubs/cffr03.pdf ) or CFFR for expenditure data; and Federal Tax Burden by State (The Tax Foundation, Washington, DC, http://www.taxfoundation.org ) for tax data.  The Tax Foundation, a nonpartisan nonprofit based in Washington, employs a tax incidence model to apportion the federal tax burden among states.  For further California-focused information regarding federal grants, see Federal Formula Grants and California, a joint project of the Public Policy Institute of California and the California Institute for Federal Policy Research, at http://www.calinst.org/formulas.htm .

It should be noted that the Tax Foundation publishes the equivalent of a balance of payments statistic for each state, and that the number for California sometimes varies from that published in this report.  The difference exists because of differences between the methodology used by the California Institute and that by the Tax Foundation.  The two organizations employ different methods of adjusting for undistributed spending and territorial spending.  In addition, the Tax Foundation alters the spending amounts to match the federal tax burden total, whereas the California Institute adjusts the tax burden amount to match total federal spending.

Important Recent Changes in Federal Tax Burden Data

Importantly, in late 2004, the Tax Foundation published major retroactive adjustments of their previously-published estimates of the annual federal tax burden attributable to a number of states, including California.

For most fiscal years, these changes were relatively small for California.  However, for fiscal years 2000 and 2002, the state’s tax burden figures changed considerably – increasing the state’s tax burden for 2000 from prior publications and reducing it for 2002.  For 2000, California’s tax burden is now estimated to have been $277 billion, rather than $254 billion as previously published.  For 2002, the Tax Foundation reduced the state’s estimated tax burden from $256 billion to $243 billion.

As a consequence of these adjustments, the California balance of payments data from prior years’ versions of this report also required adjustments.  This report and its supplementary data incorporate these new tax burden amounts and the new balance of payments data generated thereby.  Hence, whereas the 2002 version of this report estimated that California’s balance of payments deficit to the federal treasury amounted to $58 billion, it has been adjusted to $45 billion (it since rose to $50 billion for 2003).  Likewise, the figure for federal spending per tax dollar for 2002 has been adjusted from 77 cents, as published previously, to a revised return of 81 cents per 2002 tax dollar.  As such, the 2003 shortfall of 79 cents per dollar now represents the lowest return recorded.

 

 

The California Institute for Federal Policy Research

419 New Jersey Avenue SE, Washington, DC 20003

Phone: 202-546-3700    Fax: 202-546-2390

ransdell@calinst.org    http://www.calinst.org

 

 

Table 1.  Federal Spending, Tax Burden, and Population, 1981-2003:  U.S., California, and California Share

 

 

 

 

 

 

 

 

 

 

 

All States

Total Expenditures

Procurement

Grants

Wages

Direct Payments

Population

Tax Burden

Tax Burden per Capita

Spending per Capita

 

Fiscal Year

($millions)

($millions)

($millions)

($millions)

($millions)

(1000s)

($millions)

($)

($)

 

1981

572,338

119,297

94,802

92,180

259,520

229,542

585,483

2,551

2,493

 

1982

613,658

135,412

88,267

97,136

286,070

231,822

601,605

2,595

2,647

 

1983

676,080

142,088

92,286

102,131

319,195

233,806

584,962

2,502

2,892

 

1984

706,451

160,150

96,744

108,649

324,390

235,847

649,518

2,754

2,995

 

1985

761,642

189,009

100,828

114,721

345,987

237,950

715,615

3,007

3,201

 

1986

802,969

186,497

108,954

119,645

360,945

240,162

749,305

3,120

3,343

 

1987

819,155

176,185

104,005

125,895

380,073

242,321

834,943

3,446

3,380

 

1988

849,492

164,648

109,835

133,341

404,396

244,534

889,162

3,636

3,474

 

1989

910,463

162,636

129,309

141,919

448,936

246,820

967,978

3,922

3,689

 

1990

977,357

165,773

143,488

144,965

493,266

248,846

1,004,094

4,035

3,928

 

1991

1,074,138

183,525

166,356

155,268

537,344

252,981

1,031,531

4,078

4,246

 

1992

1,171,954

175,037

197,710

160,418

607,033

256,514

1,064,115

4,148

4,569

 

1993

1,237,448

176,337

229,696

165,020

645,979

259,918

1,135,065

4,367

4,761

 

1994

1,275,085

174,290

245,472

167,729

691,114

263,126

1,235,629

4,696

4,846

 

1995

1,331,368

177,431

256,569

165,724

711,645

266,278

1,323,407

4,970

5,000

 

1996

1,363,804

179,354

255,615

167,291

743,038

269,394

1,427,638

5,299

5,062

 

1997

1,399,264

172,913

269,129

163,630

775,689

272,647

1,553,934

5,699

5,132

 

1998

1,443,348

181,729

285,672

165,707

810,266

275,854

1,689,252

6,124

5,232

 

1999

1,509,598

189,881

307,673

172,788

839,250

279,040

1,792,645

6,424

5,410

 

2000

1,604,671

207,160

337,278

179,828

880,405

282,224

1,982,491

7,025

5,686

 

2001

1,742,039

225,940

364,467

182,469

969,161

285,318

1,953,476

6,847

6,106

 

2002

1,882,255

254,252

406,635

194,727

1,026,833

288,369

1,819,339

6,309

6,527

 

2003

2,009,586

294,042

435,052

207,291

1,075,228

290,810

1,747,995

6,011

6,910

 

 

 

 

 

 

 

 

 

 

 

 

California

Total Expenditures

Procurement

Grants

Wages

Direct Payments

Population

Tax Burden

Tax Burden per Capita

Spending per Capita

Per Capita Balance of Payments

Fiscal Year

($millions)

($millions)

($millions)

($millions)

($millions)

(1000s)

($millions)

($)

($)

($)

1981

69,416

21,647

10,008

11,074

25,748

24,216

69,960

2,889

2,867

42

1982

77,501

27,521

9,016

12,048

28,224

24,698

72,209

2,924

3,138

156

1983

86,364

30,856

9,207

12,791

31,252

25,367

71,020

2,800

3,405

169

1984

91,713

34,178

9,799

13,461

32,694

25,847

80,130

3,100

3,548

176

1985

97,814

35,208

10,589

14,431

35,362

26,444

89,784

3,395

3,699

85

1986

100,860

35,228

11,291

15,052

36,960

27,106

95,654

3,529

3,721

-61

1987

100,753

32,212

11,006

15,506

39,261

27,781

108,853

3,918

3,627

-217

1988

102,366

29,457

11,676

16,380

41,941

28,468

118,057

4,147

3,596

-366

1989

109,125

29,455

13,759

17,604

46,729

29,218

129,405

4,429

3,735

-431

1990

117,636

29,500

16,507

17,746

51,448

29,811

135,735

4,553

3,946

-486

1991

128,639

32,101

18,232

18,519

56,631

30,470

137,266

4,505

4,222

-469

1992

141,913

32,353

22,163

18,988

64,816

30,974

137,706

4,446

4,582

-315

1993

149,383

31,483

27,774

19,239

70,887

31,274

143,299

4,582

4,777

-219

1994

153,952

30,416

31,548

18,830

73,158

31,484

152,810

4,854

4,890

-119

1995

153,831

26,537

32,914

18,376

76,003

31,697

163,195

5,149

4,853

-326

1996

156,075

26,168

32,113

18,038

79,757

32,018

177,386

5,540

4,875

-418

1997

158,566

26,245

32,237

17,587

82,486

32,486

195,132

6,007

4,881

-528

1998

161,909

25,365

35,564

17,344

83,636

32,988

213,669

6,477

4,908

-626

1999

168,676

25,795

39,657

17,733

85,491

33,499

236,178

7,050

5,035

-902

2000

175,967

27,011

40,980

17,835

90,140

34,010

277,189

8,150

5,174

-1,423

2001

188,758

28,949

44,321

17,858

97,630

34,600

265,573

7,675

5,455

-1,389

2002

206,401

34,753

48,084

19,143

104,422

35,116

243,062

6,922

5,878

-1,283

2003

219,706

37,050

51,329

20,611

110,716

35,484

234,595

6,611

6,192

-1,409

 

 

 

 

 

 

 

 

 

 

 

California Percentage

Total Expenditures

Procurement

Grants

Wages

Direct Payments

Population

Tax Burden

Unadjusted Balance of Payments

Adjusted* Balance of Payments

Return per Taxpayer Dollar

Fiscal Year

(%)

(%)

(%)

(%)

(%)

(%)

(%)

($millions)

($millions)

($)

1981

12.1

18.1

10.6

12.0

9.9

10.5

11.9

846

1,027

$1.01

1982

12.6

20.3

10.2

12.4

9.9

10.7

12.0

6,784

3,846

$1.05

1983

12.8

21.7

10.0

12.5

9.8

10.8

12.1

17,606

4,281

$1.06

1984

13.0

21.3

10.1

12.4

10.1

11.0

12.3

14,210

4,559

$1.06

1985

12.8

18.6

10.5

12.6

10.2

11.1

12.5

11,631

2,255

$1.03

1986

12.6

18.9

10.4

12.6

10.2

11.3

12.8

8,848

-1,645

$0.98

1987

12.3

18.3

10.6

12.3

10.3

11.5

13.0

-3,853

-6,041

$0.94

1988

12.1

17.9

10.6

12.3

10.4

11.6

13.3

-10,837

-10,424

$0.91

1989

12.0

18.1

10.6

12.4

10.4

11.8

13.4

-16,411

-12,591

$0.90

1990

12.0

17.8

11.5

12.2

10.4

12.0

13.5

-16,387

-14,484

$0.89

1991

12.0

17.5

11.0

11.9

10.5

12.0

13.3

-9,417

-14,297

$0.90

1992

12.1

18.5

11.2

11.8

10.7

12.1

12.9

29

-9,748

$0.93

1993

12.1

17.9

12.1

11.7

11.0

12.0

12.6

3,036

-6,841

$0.95

1994

12.1

17.5

12.9

11.2

10.6

12.0

12.4

1,725

-3,738

$0.98

1995

11.6

15.0

12.8

11.1

10.7

11.9

12.3

-7,266

-10,346

$0.94

1996

11.4

14.6

12.6

10.8

10.7

11.9

12.4

-17,679

-13,379

$0.92

1997

11.3

15.2

12.0

10.7

10.6

11.9

12.6

-31,354

-17,144

$0.91

1998

11.2

14.0

12.4

10.5

10.3

12.0

12.6

-50,356

-20,656

$0.90

1999

11.2

13.6

12.9

10.3

10.2

12.0

13.2

-60,681

-30,211

$0.87

2000

11.0

13.0

12.2

9.9

10.2

12.1

14.0

-101,222

-48,395

$0.83

2001

10.8

12.8

12.2

9.8

10.1

12.1

13.6

-76,815

-48,070

$0.82

2002

11.0

13.7

11.8

9.8

10.2

12.2

13.4

-36,661

-45,066

$0.81

2003

10.9

12.6

11.8

9.9

10.3

12.2

13.4

-14,889

-49,997

$0.79

 

 

 

 

 

 

 

 

 

 

 

* "Adjusting" federal tax burden sets it equal to federal spending in order to derive a comparable state balance of payments.  This adjustment compensates for a year's deficit or surplus.  U.S. total amounts exclude "undistributed" funds as well as spending is U.S. territories and insular areas.

No inflation adjustment is included.  Expenditure totals revised to exclude undistributed funds and spending in territories.  The District of Columbia is treated as a state.  Annual population as of July 1. Expenditures classified as "other" prior to 1998 are parsed among other categories by subsequent share.  Sources: Consolidated Federal Funds Report, U.S. Census Bureau, Washington, DC; Federal Tax Burden by State, Tax Foundation, Washington, DC; California Institute for Federal Policy Research, Washington, DC (www.calinst.org ).

 

 

 

Table 2.  Federal Spending, Tax Burden, Balance of Payments, and Return, All States, Fiscal Year 2003

 

Spending

Taxing

Adjusted Taxing

Balance of Payments

Balance Rank

Return on Investment

Return Rank

 

(Source: U.S. Census Bureau)

(Source: Tax Foundation)

(multiplying taxing by factor of 1.15 sets it to equal spending)

(spending minus adjusted taxing)

(out of 51)

(spending per dollar of taxes)

(out of 51)

Grand Total

      2,061,485

 

 

 

 

 

 

Total, Distributed

      2,027,119

 

 

 

 

 

 

Total, States & DC

      2,009,585

      1,747,993

                      2,009,585

0

 

 

 

 

 

 

 

 

 

 

 

Alabama

           36,871

           20,107

                           23,116

13,755

3

           1.68

7

Alaska

             7,944

             3,885

                             4,466

3,478

18

           1.90

3

Arizona

           37,801

           27,419

                           31,522

6,279

13

           1.23

22

Arkansas

           18,340

           11,350

                           13,049

5,291

16

           1.47

14

California

         219,706

         234,595

                         269,703

-49,997

51

           0.79

45

Colorado

           28,874

           30,179

                           34,695

-5,821

43

           0.81

42

Connecticut

           28,595

           34,957

                           40,188

-11,593

47

           0.67

49

Delaware

             5,061

             5,215

                             5,995

-934

35

           0.82

41

Dist. of Columbia

           34,750

             5,154

                             5,925

28,825

1

           6.59

1

Florida

         113,341

         100,705

                         115,776

-2,435

38

           0.98

35

Georgia

           51,910

           46,916

                           53,937

-2,027

37

           0.96

37

Hawaii

           11,269

             6,566

                             7,549

3,720

17

           1.57

10

Idaho

             8,654

             5,942

                             6,831

1,823

24

           1.31

19

Illinois

           73,020

           83,765

                           96,301

-23,281

48

           0.72

46

Indiana

           35,525

           32,095

                           36,898

-1,373

36

           0.96

36

Iowa

           17,550

           14,728

                           16,932

618

28

           1.04

30

Kansas

           18,208

           14,414

                           16,571

1,637

26

           1.11

25

Kentucky

           31,153

           18,719

                           21,520

9,633

5

           1.51

11

Louisiana

           31,646

           19,561

                           22,488

9,158

7

           1.47

13

Maine

             9,966

             6,635

                             7,628

2,338

21

           1.35

17

Maryland

           57,646

           38,602

                           44,379

13,267

4

           1.34

18

Massachusetts

           51,265

           54,394

                           62,534

-11,269

46

           0.79

44

Michigan

           57,870

           57,379

                           65,966

-8,096

44

           0.86

39

Minnesota

           27,580

           33,005

                           37,944

-10,364

45

           0.69

48

Mississippi

           21,741

           10,994

                           12,639

9,102

8

           1.83

4

Missouri

           43,874

           30,171

                           34,686

9,188

6

           1.30

20

Montana

             7,092

             4,126

                             4,743

2,349

20

           1.57

9

Nebraska

           11,000

             9,310

                           10,703

297

32

           1.03

31

Nevada

           11,637

           13,694

                           15,743

-4,106

41

           0.70

47

New Hampshire

             7,349

             9,220

                           10,600

-3,251

39

           0.65

50

New Jersey

           53,679

           73,427

                           84,416

-30,737

50

           0.58

51

New Mexico

           18,736

             8,713

                           10,017

8,719

10

           2.00

2

New York

         137,898

         144,712

                         166,369

-28,471

49

           0.80

43

North Carolina

           51,766

           42,005

                           48,291

3,475

19

           1.08

27

North Dakota

             5,726

             3,054

                             3,511

2,215

22

           1.73

6

Ohio

           69,902

           60,148

                           69,149

753

27

           1.01

32

Oklahoma

           25,254

           15,559

                           17,887

7,367

11

           1.47

12

Oregon

           21,253

           18,722

                           21,524

-271

34

           0.99

34

Pennsylvania

           90,350

           73,822

                           84,870

5,480

15

           1.07

28

Rhode Island

             8,036

             6,624

                             7,615

421

30

           1.06

29

South Carolina

           28,038

           18,604

                           21,388

6,650

12

           1.36

16

South Dakota

             6,202

             3,857

                             4,434

1,768

25

           1.46

15

Tennessee

           42,602

           29,359

                           33,753

8,849

9

           1.30

21

Texas

         140,451

         122,056

                         140,322

129

33

           1.00

33

Utah

           13,500

           10,039

                           11,541

1,959

23

           1.20

23

Vermont

             4,443

             3,481

                             4,002

441

29

           1.13

24

Virginia

           82,454

           47,419

                           54,515

27,939

2

           1.59

8

Washington

           43,368

           41,104

                           47,255

-3,887

40

           0.91

38

West Virginia

           14,226

             7,233

                             8,315

5,911

14

           1.82

5

Wisconsin

           30,237

           30,898

                           35,522

-5,285

42

           0.83

40

Wyoming

             4,226

             3,355

                             3,857

369

31

           1.11

26

Territories & PR

           17,534

 

 

 

 

 

 

Undistributed

           34,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sources: Consolidated Federal Funds Report, U.S. Census Bureau, Washington, DC; Federal Tax Burden by State, Tax Foundation, Washington, DC; California Institute for Federal Policy Research, Washington, DC (www.calinst.org ).

 

 

 

 

Table 3.  Federal Expenditures by California County, Fiscal Year 2003

 

 

 

 

 

 

 

 

 

 

Population

Total Expenditures ($1000)

Spending Per Capita ($) 2002

 

Direct Payments

Grants

Procurement

Wages & Salaries

United States

290,809,777

2,009,586,000

6,910

 

1,075,228,000

435,052,000

294,042,000

207,291,000

California

35,484,453

219,705,707

6,192

 

110,716,336

51,328,805

37,049,547

20,611,019

 

 

 

 

 

 

 

 

 

Los Angeles County

9,871,506

56,540,145

5,728

 

24,850,723

14,158,157

14,126,830

3,404,435

Orange County

2,957,766

12,437,520

4,205

 

7,062,896

1,822,777

2,771,901

779,947

San Diego County

2,930,886

24,045,060

8,204

 

9,075,686

3,791,129

5,335,335

5,842,910

San Bernardino

1,859,678

7,634,810

4,105

 

4,413,442

1,553,795

606,574

1,060,999

Riverside County

1,782,650

7,028,393

3,943

 

5,045,353

1,258,073

338,339

386,628

Santa Clara County

1,678,421

11,239,893

6,697

 

3,725,615

2,070,143

4,721,056

723,078

Alameda County

1,461,030

9,967,472

6,822

 

3,975,258

2,575,144

2,578,184

838,886

Sacramento County

1,330,711

14,837,000

11,150

 

4,946,724

8,267,868

1,000,497

621,910

Contra Costa

1,001,136

4,322,253

4,317

 

2,761,918

800,826

402,359

357,150

Fresno County

850,325

4,074,176

4,791

 

2,143,616

1,139,360

251,682

539,518

Ventura County

791,130

4,065,632

5,139

 

2,077,306

581,214

719,188

687,925

San Francisco County

751,682

7,176,169

9,547

 

2,648,404

2,421,514

1,007,969

1,098,284

Kern County

713,087

3,856,033

5,408

 

1,985,589

768,614

401,096

700,733

San Mateo County

697,456

3,239,362

4,645

 

1,985,824

628,476

318,481

306,582

San Joaquin County

632,760

2,675,054

4,228

 

1,672,603

730,493

94,811

177,147

Stanislaus County

492,233

2,046,853

4,158

 

1,311,791

549,591

109,581

75,890

Sonoma County

466,725

2,039,073

4,369

 

1,448,833

384,446

65,307

140,486

Monterey County

414,449

2,106,578

5,083

 

1,113,339

355,437

148,468

489,334

Solano County

412,336

2,442,406

5,923

 

1,207,057

328,378

406,906

500,065

Santa Barbara County

403,134

2,724,011

6,757

 

1,241,072

470,290

698,053

314,595

Tulare County

390,791

1,634,097

4,182

 

963,522

557,386

43,820

69,370

Placer County

292,235

1,145,870

3,921

 

913,377

146,444

31,180

54,870

San Luis Obispo County

253,118

1,113,690

4,400

 

834,880

203,932

29,577

45,302

Santa Cruz County

251,584

992,721

3,946

 

638,154

290,869

28,293

35,404

Marin County

246,073

1,293,360

5,256

 

815,244

364,654

44,208

69,254

Merced County

231,574

964,503

4,165

 

605,160

290,309

22,694

46,339

Butte County

211,010

1,190,659

5,643

 

870,458

261,426

27,619

31,156

Yolo County

183,042

1,061,245

5,798

 

443,824

375,890

91,187

150,343

Shasta County

175,650

1,061,189

6,041

 

743,948

216,524

27,358

73,358

El Dorado County

168,822

661,915

3,921

 

518,558

75,415

27,074

40,867

Imperial County

149,232

765,877

5,132

 

394,935

247,985

40,617

82,340

Kings County

138,564

776,751

5,606

 

320,799

144,740

26,959

284,254

Madera County

133,463

522,284

3,913

 

361,595

138,528

6,653

15,508

Napa County

131,607

702,094

5,335

 

510,536

159,538

14,813

17,207

Humboldt County

127,915

805,055

6,294

 

475,359

205,753

66,322

57,622

Nevada County

96,099

534,636

5,563

 

361,155

66,569

86,664

20,247

Mendocino County

88,358

551,513

6,242

 

324,608

200,310

8,624

17,972

Sutter County

84,703

408,621

4,824

 

303,545

80,943

12,588

11,546

Yuba County

63,432

557,594

8,790

 

239,848

123,451

10,259

184,036

Lake County

63,369

413,619

6,527

 

315,086

85,620

3,631

9,281

Tehama County

58,582

321,691

5,491

 

213,966

85,600

7,990

14,136

Tuolumne County

56,755

332,012

5,850

 

240,280

58,149

11,408

22,174

San Benito County

56,300

168,239

2,988

 

100,525

40,017

18,973

8,724

Siskiyou County

44,626

349,939

7,842

 

216,399

86,453

12,781

34,306

Calaveras County

44,533

230,093

5,167

 

185,677

35,410

2,175

6,830

Amador County

37,273

190,429

5,109

 

157,114

26,371

1,862

5,082

Lassen County

33,926

197,184

5,812

 

98,515

39,323

30,332

29,015

Del Norte County

27,913

153,226

5,489

 

103,982

40,215

1,545

7,484

Glenn County

27,256

162,674

5,968

 

109,581

35,019

4,124

13,950

Plumas County

21,148

157,247

7,436

 

96,570

35,285

7,965

17,428

Colusa County

19,678

131,194

6,667

 

102,059

22,471

3,479

3,185

Inyo County

18,326

278,109

15,176

 

80,242

40,070

140,939

16,859

Mariposa County

17,803

134,623

7,562

 

73,327

15,258

19,592

26,446

Trinity County

13,476

99,909

7,414

 

62,599

21,012

5,370

10,928

Mono County

12,988

46,167

3,555

 

19,591

4,715

7,989

13,872

Modoc County

9,417

90,384

9,598

 

41,477

16,081

18,165

14,662

Sierra County

3,502

27,215

7,771

 

14,898

7,701

1,830

2,785

Alpine County

1,209

7,571

6,262

 

6,075

849

271

376

State undistributed

 

14,972,617

 

 

13,145,825

1,826,791

0

0

 

 

 

 

 

 

 

 

 

SOURCE:  Consolidated Federal Funds Report, Fiscal Year 2003, U.S. Census Bureau, Washington, DC.  California Institute for Federal Policy Research, Washington, DC.  ( www.calinst.org )  NOTE:  Figures show population as of July 1, 2003.