Chump Index

We are one nation. If a particular region is doing well we expect that region to help the rest of the nation. If oil & gas revenues are flowing in a particular region then we as a nation (partially) share in that bounty. Later when the oil & gas runs dry the rest of the nation reciprocates.

That’s the share-the-wealth concept behind municipal grants.

I earlier proposed a confederated tax scheme where states collect Federal taxes on behalf of their residents using alternate taxes. Individuals calculate their Federal taxes using the Federal tax code and the state pays the tax on behalf of their residents using, for example, a tax on oil & gas revenues.

Begs the question as to the appropriate Federal tax code under a confederated tax scheme. How should we collect Federal taxes so as to more equitably share-the-wealth, promoting the ‘one nation’ ideal?

The data may surprise you.

Contents

  1. Chump Index
  2. The Blues
  3. Analysis
  4. Conclusion

The Blues

Today blue states heavily subsidize red states. The land of the free sponges off the land of the handouts. Ouch!

The chart below shows tax revenues by state: today’s actual, per capita (Capitation Tax) and per economic activity (% of GDP Tax). I used these along with the state’s population to calculate the Chump Index.

Which states today pay more Federal taxes than would be expected based on population or economic levels? Those high on the Chump Index.

ChumpIndex

Note: Click on the image for a complete listing, including the formula. Data comes from here . Red values are where today’s actual taxes are higher than the alternate tax option.

Analysis

Don’t know what to make of the Chump Index.

Ohio, Pennsylvania and Missouri are swing states. You’d think they’d have the political clout to improve their ranking on the Chump Index. Indeed most states high on the Index have large electoral college votes.

Not all GDP is created equal. Some GDP is high margin (profitable), some low margin. That could adjust some of the rankings but likely only slightly.

Perhaps this chart highlights the importance of GDP income distributions within states. States having mostly middle class incomes would be expected to rank higher on the Chump Index (i.e., everyone pays taxes).

Perhaps rankings are affected by cross-border commuters.

States high on the Chump Index may receive more Federal spending (e.g., District of Columbia) than those lower in ranking, justifying their higher taxes. At least that’s what some would argue. But higher Federal spend should also raise GDP for a state and lower its ranking on the Chump Index.

Conclusion

A share-the-wealth approach would collect taxes based on economic strength (e.g., % of GDP) and give grants to states suffering economic weakness, thereby leveling GDP per state and getting everyone closer to zero on the Chump Index. Better yet do it at the level of municipalities.[1]

Perhaps states high on the Chump Index are economically stronger and therefore pay more into the Federal coffers? Perhaps we have half the equation, tax collection, and we skimp on grants needed to raise the rankings of the weaker economies (e.g., West Virginia)?

In any event the rankings on the Chump Index are curious. Perhaps they hint as to why tax reform has become such an intractable task. There are as many excuses for a state’s ranking as there are states.


1. Why even collect Federal taxes just to give it back as municipal grants? As discussed with municipal grants, done well this more fully engages voters leading to many other local benefits.

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