[rayiner]

There is no federal support for disadvantaged states in the sense we are talking about with the EU. You’re referring to the fact that federal taxation is progressive, so states with more rich people carry a larger share of the federal tax burden than states with fewer rich people. You can think of that as a form of subsidy, but it’s really just how progressive taxation works. The alternative would be a system where the federal tax burden is apportioned based on population, which is what the constitution required before the 16th amendment.

The EU system is totally different. About a third of the EU budget is allocated to reducing economic disparities between member states. The U.S. doesn’t have anything like that.

[skissane]

Most other federations have formal mechanisms for ensuring fiscal equity between their federal constituents – Australia has the Commonwealth Grants Commission, Canada has its Equalization Program, Germany has the Länderfinanzausgleich, Switzerland has Nationaler Finanzausgleich, Brazil has the Fundo de Participação dos Estados, Mexico has Participaciones Federales, Argentina has the Régimen de Coparticipación Federal de Impuestos; the UK is a devolved unitary state not a federation, but it has the Barnett formula – the United States is unusual in being a federation without formal fiscal equity mechanisms, although its informal mechanisms (progressive taxation, social security, welfare, Medicare/Medicaid, Congressional earmarks and pork-barrelling, etc) end up achieving much the same end with less transparency in the process.

And I don't know why people keep on comparing the US and the EU. One is a federal nation, the other is a supranational entity. Other nations with federal systems–Canada, Mexico, Australia, Germany, Switzerland, Argentina, Brazil–are better comparators–comparing an apple with (smaller) apples instead of with an orange.

[rayiner]

Progressive taxation and welfare don’t achieve the same end, because they’re directed to individuals rather than the government. Mississippi can’t use social security payments to build infrastructure.

Also, programs like Medicaid aren’t as redistributive as you might think. For example, Mississippi gets less federal medicaid spending per capita than Massachusetts, New York, or California, despite being the poorest state: https://ffis.org/wp-content/uploads/2024/10/SA23-01.pdf (p. 4). In terms of federal K-12 education funding, Mississippi receives about $3,000 per student, but California receives almost as much, $2,750 per student: https://educationdata.org/public-education-spending-statisti.... Utah meanwhile receives only $1,300 per student, while Alabama receives about the same as New York, at $2,400 per student.

[skissane]

> Mississippi can’t use social security payments to build infrastructure.

Indirectly, it can, because social security recipients spend the payments they receive, and then some of those payments incur state sales taxes, and contribute to revenue of businesses which pay further state taxes (such as income tax for employees).

And direct federal grants can't always be spent on infrastructure either – you can't use Medicaid funding to build highways.

> Also, programs like Medicaid aren’t as redistributive as you might think.

If you zoom out from individual programs and look at the overall fiscal balance: https://usafacts.org/articles/which-states-contribute-the-mo...

In FY2024, Mississippi residents received (per capita) $11K more in federal spending than they paid in federal taxes; only West Virginia, Alaska and New Mexico received more.

Meanwhile, Texas residents paid $2K more per capita in federal taxes than they received in federal spending; New York residents $4K more per capita; Massachusetts residents $5K more per capita; California, New Jersey and Washington state residents $7K more.

Nebraska got the worst fiscal deal of any US state, with its residents paying $10K more in federal taxes than they received in federal spending

[rayiner]

> you zoom out from individual programs and look at the overall fiscal balance

Right, but the overall fiscal balance is driven by the revenue side, not the spending side. More specifically, it’s driven by revenue from the top 50% of households, who pay 90% of all federal income taxes. New York pays more than Mississippi because it has more high income households than Mississippi. You can think of it as a subsidy, but we don’t usually think of it that way. By the same logic, asian american subsidize white americans, and white americans subsidize hispanic americans. Any time you draw a line around a higher income group, that group will pay more taxes. We typically wouldn’t call that a subsidy from one group to the other.

The point at which a tax system becomes redistributive rather than “fair” is hard to pin down, and a little (but not completely) arbitrary. If society decides that the federal government should provide social support for kids with disabilities, how do you pay for that? Under your math, anything that isn’t a head tax (equal per person) is a subsidy to lower income states like Mississippi. Even a flat percentage rate tax would mean that New York would end up paying more into that system, per capita, than Mississippi. But most people would call a head tax very regressive. Zooming out further: who benefits the most from a naval base in Mississippi? Your math presupposes that Mississippi gets all the benefit. But there is a strong argument that California and New York and their finance-based industries benefit more from the U.S. military.

Putting all that aside, the systems we are talking about in Europe aren’t just progressive taxation. The EU has progressive taxes in a sense—countries fund the EU based on their income levels. But the EU also has transfer programs where poorer countries get direct subsidies to foster economic development. We don’t have anything like that in the U.S.

The distinction we draw is somewhat arbitrary, but there’s also a logic that richer people benefit more from funding the government even if they get the same amount of services per capita. When the feds spend money on a naval base in Mississippi, who gets a greater benefit from that? Folks working in the base in Mississippi, or the folks working finance in New York whose incomes are tied to the U.S. having the world’s reserve currency?