Colorado As A Donor State

According to the Tax Foundation, in 2004, Colorado got 79 cents back for every dollar paid from the federal government, leaving it ranking 41st out of the 50 states in the share it gets back, with the lowest return it has received on its tax dollars since, at least, 1981, and possibly ever.

This is a fairly recent development.  In 1994, the year Republicans secured a majority in Congress, Colorado broke even.  At its 1989 peak, Colorado receive $1.21 in federal largesse for every dollar spent in taxes.The Tax Foundation, of course, uses funny numbers.  In 2004, Colorado paid $31.8 billion in taxes to the federal government, and received $30.1 billion in federal spending, which actually works out to be just short of a 95% return on our contribution.  But, the Tax Foundation, turns 95% into 79% by allocating each state its share of the federal deficit as a form of implicit tax.

Never the less, because it has used this method of calculation consistently over time and across the several states, it is as fair a method as any to rank states relative to each other and over time.  Colorado certainly gets a raw deal compared to what it did fifteen years earlier, and also gets a raw deal compared to other states.

Politically, one would expect the opposite.  Colorado has reliably delivered a Republican majority in its Congressional delegation and voted consistently for Republican Presidents.  Yet, Colorado has seen its fiscal account with the federal government decline steady from its peak at the end of the Reagan Administration.  It declined all through the first Bush Administration, continued through eight years of the Clinton Administration (six out of eight of which were vis-a-vis a Republican controlled Congress), and has continued through the second Bush Administration (again, vis-a-vis a Republican Congress for the last five and a half years).  Republicans have controlled Congress since 1994, but Colorado has not seen the spoils trickle down to it.

Most of the states that are receive a smaller share of federal taxes paid than Colorado are hard core blue states.  They include New York, California, Massachusetts, Illinois, Connecticut, and New Jersey.

All of Colorado’s neighbors receive far more federal funds compared to what they pay in taxes than Colorado does at its 79 cent figure under the Tax Foundation’s methodology.  Even by the Tax Foundation’s deficit adjusted calculations, Kansas ($1.12), Nebraska ($1.07), Wyoming ($1.11), Montana ($1.58), Utah ($1.14), Arizona ($1.30), New Mexico ($2.00), and Oklahoma ($1.48) are all in the black. 

Colorado does not fit the national trend in which blue states tend to pay more in taxes than they receive in federal spending, while red states tend to be in the black; a trend that has been repeated at the Congressional District level.  According to a report from Slate in 2002, “the discrepancy between money lavished on Democratic and Republican congressional districts is now 15 times greater (again, discounting for inflation) than it was under the Democrats.”

The Bush tax cuts, which have disproportionately benefited higher income taxpayers, who are disproportionately found in Colorado, also should have helped, but didn’t.

So, what happened?  Why hasn’t Colorado’s majority Republican Congressional delegation brought home the bacon?  Is the shift in Colorado’s fiscal account with the federal government from donee to donor a reflection of larger changes in Colorado’s economy?  Are economic changes that are making Colorado look more like a blue state changing voter attitudes in a direction favorable to the Democrats as a result?

Over the next few days, we’ll take a look at what is going on.

Cross Posted at Wash Park Prophet.

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Andrew Oh-Willeke

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