Do Blue States Subsidies of Red States Indicate Their Fiscal Superiority?

The realization that nearly 40% of President Obama's electoral support came from the five fiscally disastrous and chronically blue states of California, Illinois, Michigan, New York and New Jersey apparently hit some raw nerves. Some critics countered with the fair point that red states recover more federal tax dollars then they pay and are consequently subsidized by blue states that pay more than they receive. That assertion is arithmetically correct but the interpretation that somehow red states should be thankful for the generosity of blue states and are financially or fiscally inferior is fanciful.

First, a significant portion of federal tax revenues flow back to residents of all states as Social Security and Medicare payments, which for the most part have been earned by recipients who paid into those programs during their entire working lives, so they should never be confused as gifts of charity and are certainly not the result of the beneficence of blue states. States also receive significant federal tax revenues for national defense and military spending, which protect everyone, especially coastal blue states, at least more so than interior red states.

Second, blue states generally pay more federal taxes than they receive because their residents and businesses are more affluent. Ironically, if President Obama wins the fiscal cliff negotiations and raises taxes on the wealthy, that tax disparity will widen, but the effect should be short-lived as long term trends show that affluent folks continue to leave high tax/high cost blue states for red states; over time the disparity should narrow.

Third, blue states, not red states, need a financial overhaul. The five states identified herein recover federal tax revenues ranging from only 61 cents (New Jersey) to 92 cents (Michigan) per dollar their residents pay in federal taxes, with the remaining three states receiving approximately 75-80 cents per tax dollar they pay. Those states are trying desperately to stay financially solvent by raising state and local taxes, which for New York, New Jersey and California are already among the nation's highest.

Those states carry enormous debt epitomized in the extreme by California's whopping $618 billion; they carry debilitating budget deficits, epitomized by the nation's worst at $44 billion in Illinois; and carry smothering unfunded state government worker pension and healthcare liabilities that amount to as much as 43%, 37% and 31% of the respective state GDP's of Illinois, New Jersey and California.

If allowing those states to keep more of their federal tax dollars would enhance their financially viable, such a policy should be considered, but let's not kid ourselves, there will be no quick fixes to their problems.

Did The Fiscal Cliff Just Become a BASE Jumping Parachuting Opportunity?

Back when I was a young man in building my business up, I think the year was 1987 or something like that, our federal government failed to produce a budget and it ran out of money, and they shut the government down for a few weeks. Do you know what happened? Nobody noticed.

Okay so I'd like to talk to you a little bit about this so-called self-imposed fiscal cliff which is said to be such a big deal right now (November 2012). You see, the reason we have a fiscal cliff is because our legislative branch could not come up with a federal budget on time as they were supposed to.

Indeed, it's their only one job that they must do by law every single year. They couldn't seem to figure out how to balance the books, live within their means, and they just kept borrowing money and spending. They had put forth a limit of the amount of debt that they would incur on the behalf of the American taxpayer. They went over that amount, several times, always kicking the can down the road. Now they've come up against the can in the road again, rather than deal with it, they all went on vacation for the Thanksgiving Holiday. Amazing isn't it?

Some say this fiscal cliff is going to be a big deal and could cause us to go into recession, in fact, the Congressional Budget Office which put out such a warning. Well, I say; can you imagine the depression that will occur if our government continues to spend at this level? And why didn't they deal with this last time, or the time before, or the time before that - you ask? Simple, the politicians didn't want to cause any hardship or modify the government (taxpayer) money flows to their favorite lobbyists, or deal with the voter fallout from budget cuts on social services or big corporate contracts.

This last time it seems the Democrat Leadership wanted to wait until after the 2012 elections to deal with their obligations to have a budget and to stop spending over the debt limit they'd set, which by the way were quite high, high enough no one thought they'd hit for another decade or more, and by then inflation would have basically taken care of it - not that such a strategy is acceptable - it's clearly not, but that's what they were thinking. Instead they ran up against that limit in about 3 years.

Maybe this time, and this is real "hope" maybe we can get these socialist spenders to stop wasting our taxpayer's money so we can parachute down without going off this cliff at a full clip, because we won't make it to the other side if we don't have a plan. Please consider all this and think on it.

Lance Winslow has launched a new provocative series of eBooks on Innovation in America. Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank; http://www.worldthinktank.net/