Flawed argument in letter to the Strib

On Friday I read a letter to the editor in the Star Tribune (Strib). Here it is in its entirety.

MPLS-HINCKLEY-DULUTH RAIL
Utah, etc., shouldn’t buy

The proposed high-speed rail line that would haul businesspeople, tourists and gamblers between Minneapolis, Hinckley and Duluth sounds like quite a deal for Minnesota.

A $363 million investment would generate $2 billion in development, according to a study reported on in the Jan. 23 Star Tribune. And, the federal government would pay 70 to 80 percent of the tab. No wonder both Democratic and Republican members of Minnesota’s congressional delegation are lining up to support the project.

But wait a minute. Isn’t the federal government running a deficit? Maybe the politicians can explain to me why the good taxpayers of Iowa, Wisconsin and 47 other states should pay 70 to 80 percent of the costs of a rail line that would benefit primarily Minnesota.

J.H. FONKERT, ST. PAUL

Now I haven’t read the article this letter writer is commenting on, and I don’t need to counter JH’s argument.

JH is basically saying that because the Feds are going to fund 70-80% of the cost of this rail line that it is wrong. That other state’s shouldn’t have to foot the bill because it benefits Minnesota.

Maybe the author thinks that such a great return on investment should warrant the state to put up the full funds. Now that case could be made, but wasn’t explicitly stated.

Now on to countering the argument, the Tax Foundation (with praise from John Kennedy, Milton Friedman, John Snow, and Dick Armey it is definitely non-partisan) has done an analysis looking at federal tax revenue leaving a state to the federal budget and comparing it to federal expenditures spent within a state. Here is the summary of the analysis and what impacts it.

Federal Taxes Paid vs. Spending Received by State

States send federal taxes to Washington and receive federal spending in return. However, some states benefit more from federal taxing and spending policies than others. Some “beneficiary” states receive a positive return from Uncle Sam, making other states “donors” who pick up the tab. The most important factor determining whether a state is a net beneficiary is per capita income. States with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax. Other factors include whether states have powerful Members of Congress, the number of federal employees present in a state, and the number of residents receiving Social Security, Medicare and other federal entitlements.

They have collected data for tax years 1981 through 2005 for each state. You can see the data at this pdf (MN is on page 23). The closest Minnesoa came to receiving $1 in federal spending for $1 sent in tax revenue was when we received $0.94 per $1 sent in 1988. According to their data in 2003 and 2004 we received $0.68 and in 2005 $0.72.

Iowa, well since 1985 they have received over $1 for each $1 sent. So for JH to argue that others states shouldn’t have to pay for the federal share of our rail investment is about the stupidest argument that you could make in light of the fact that receive far less in federal expenditures as a state than we send in federal tax revenues to the government.

-Josh

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