On Resource Redistribution Between States

by: Ryan Avent

Here’s Brookings’ Robert Puentes:

[T]he largest federal highway program—the Equity Bonus program—exists solely to make sure that each state gets its “fair share” of revenue, defined as 92 percent of the state’s annual contributions to the trust fund. In other words, states get roughly as much money as they pay in gas-tax revenue.

But now that the highway account is set to get bailed out with $28 billion in general funds, that formula needs to be revisited. The Equity Bonus should make sure that states receive highway funds based on contributions to the general fund. Based on work from the Tax Policy Center, a joint effort by the Urban Institute and Brookings, states like New York, California, Washington, and Massachusetts all contribute far more in general tax revenue than they receive from the existing Equity Bonus program. Conversely, Florida, Georgia, and Texas all receive disproportionately large Equity Bonus payments…

I don’t think there’s anything necessarily wrong with persistent net deficits or surpluses in federal spending. Some states are rich and others are poor, and we don’t generally have a problem with the redistribution of some resources from rich to poor to provide basic levels of food, housing, education, and so on. Neither do I think that altering these relationships would do much to change California’s situation.

I do think that if we’re just looking at infrastructure spending, and we observe that some places persistently receive less in funding than the share of revenue they contribute while others persistently recieve more, then that’s a problem. There’s no reason I can see that you’d want to systematically divert funds away from the country’s economic growth engines. Moreover, what we have here is a pretty clear case of states with smaller per capita carbon footprints subsidizing growth in states with larger per capita carbon footprints, which is not good.