Money has a funny way of moving when you aren't looking. You work your tail off in a cubicle in New Jersey or a tech firm in California, you see that chunk missing from your paycheck every two weeks, and you assume it’s going toward the potholes on your street or the school down the block. Most of it isn’t. A huge portion of those federal tax dollars is actually packing its bags and heading to places like Mississippi, West Virginia, or Kentucky. It’s called being a "donor state."
The whole concept of states that pay more than they get isn't just a political talking point used during election cycles. It is a measurable, statistical reality tracked by groups like the Rockefeller Institute of Government and the Tax Foundation.
It's weird.
People get really heated about this because it feels like a forced allowance. You’re essentially subsidizing the lifestyle and infrastructure of a person three time zones away who might have a completely different view of how the world should work. But the math doesn't care about feelings. Some states simply generate massive amounts of wealth and have fewer citizens relying on federal safety nets, while others are essentially kept afloat by the federal government's redistribution of wealth.
Why Some States are Constant Donors
Let's look at New York. Honestly, the numbers are staggering. According to the Rockefeller Institute’s "Balance of Payments" reports, New York consistently ranks at the top of the list of states that pay more than they get. We’re talking about a negative balance of payments that can exceed $20 billion in a single year.
Why? It’s a mix of high incomes and low federal investment.
When you have a high concentration of high-earning individuals in Manhattan or the surrounding suburbs, they fall into the highest federal tax brackets. They pay more in. Meanwhile, New York has a relatively high cost of living, which means federal spending on things like salaries for federal employees or military bases doesn't go as far, or simply isn't as prevalent as it is in the South.
California is another one. People love to dunk on California’s budget issues, but the federal government loves California's tax revenue. For decades, California was a massive donor state. Recently, during the COVID-19 pandemic years, that shifted slightly because of the massive influx of federal aid, but as that dust settles, California is swinging back toward its historical norm. It’s a powerhouse. It produces. And then it sends that production elsewhere.
Then you have Massachusetts and New Jersey. These aren't huge states in terms of landmass, but they are dense with high-paying industries—biotech, finance, pharma. Because the federal tax code is progressive, these states are basically the "rich friends" in the group who always end up picking up the tab at dinner because everyone else forgot their wallet.
The Other Side: The "Taker" States
Now, nobody likes the term "taker state." It’s derogatory and misses a lot of the nuance regarding why these states need the money. But if we are looking purely at the "Balance of Payments," states like New Mexico, Mississippi, and West Virginia are the biggest beneficiaries.
Take New Mexico. It often receives nearly $2 or more in federal spending for every $1 its citizens pay in federal taxes.
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Is that because they are "lazy"? No. It’s because the federal government owns a massive amount of land there. Think about the Los Alamos National Laboratory or the various military installations. The federal government spends billions on those sites, which counts as "spending in the state," even if it’s not going directly into a resident's pocket as a handout.
In places like Mississippi and West Virginia, the story is different. It’s about poverty and demographics. High rates of eligibility for Social Security, Medicare, and SNAP (food stamps) mean the federal government is constantly pumping money into these local economies just to maintain a baseline of survival.
It’s a cycle.
If a state has an aging population, they’ll naturally get more back because Social Security is federal. If a state has a high poverty rate, they’ll get more in Medicaid. It’s not necessarily a choice by the state government; it’s a reflection of who lives there.
The Economic Friction of Red vs. Blue
You can't talk about states that pay more than they get without mentioning the political divide. Generally speaking—though there are exceptions—the states that pay the most tend to lean Democratic, and the states that receive the most tend to lean Republican.
This creates a bizarre tension in Washington.
You’ll often see politicians from "receiver" states railing against federal spending and "big government," even though their own state's budget would collapse without that very spending. Conversely, you see politicians from "donor" states like New Jersey’s Josh Gottheimer or New York’s Kirsten Gillibrand constantly fighting to get a "fair share" back.
Remember the SALT deduction fight? The State and Local Tax deduction was a way for people in high-tax states (the donors) to catch a break on their federal taxes. When the 2017 Tax Cuts and Jobs Act capped that deduction at $10,000, it basically turned the thumb-screws on the donor states. It made it even more expensive to live in a state that was already subsidizing the rest of the country.
It felt like a targeted strike. It probably was.
Misconceptions About Federal Spending
One thing most people get wrong is thinking that "federal spending" just means welfare checks. It doesn't.
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When we talk about the balance of payments, we are looking at:
- Direct Payments: Social Security, Medicare, unemployment insurance.
- Grants: Money for highways, Medicaid, and education.
- Procurement: Federal contracts with private companies (think Boeing in Washington or Lockheed Martin).
- Wages: Salaries for federal employees, from TSA agents to park rangers.
This is why Virginia and Maryland often look "wealthy" but still receive a lot of federal money. They are home to the "Beltway" crowd. Every time a federal agency buys a new fleet of trucks or hires a thousand new analysts, Maryland and Virginia see their "received" numbers go up. It’s not welfare; it’s the business of government happening in their backyard.
Connecticut is another fascinating case. It has one of the highest per-capita incomes in the world. It’s a massive donor state. But because it has a huge defense industry (Submarines in Groton!), it gets more procurement money than you might expect. Even with that, the residents pay so much in personal income tax that the state remains a net loser in the federal exchange.
The Problem With the "Fairness" Argument
Is it unfair that states that pay more than they get exist?
That depends on your view of what the United States actually is. If you view the U.S. as a single cohesive nation, then it makes sense for the wealthier "neighborhoods" to help the struggling ones. We don't complain that the rich part of town pays for the library in the poor part of town—at least, not usually.
But if you view the U.S. as a collection of sovereign states, the current system looks like a massive, permanent wealth transfer.
Economists like Kim Rueben from the Urban-Brookings Tax Policy Center have pointed out that this system actually acts as a stabilizer. When one part of the country hits a recession (like the Rust Belt did), the tax dollars from the parts of the country that are booming (like Silicon Valley) flow in to prevent a total humanitarian disaster. It keeps the Union together.
Without this "subsidization," the economic disparity between a state like Connecticut and a state like Mississippi would eventually look more like the disparity between Germany and Greece.
Real Data: The Current Rankings
If you look at the most recent 2024-2025 data sets provided by the Rockefeller Institute, the list of donors hasn't changed much.
New Jersey typically has the worst "Return on Investment." For every dollar they send to D.C., they might see about 70 to 80 cents back.
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Massachusetts is usually right there with them.
New York is the big whale, often sending $20+ billion more than it receives.
Minnesota and Illinois also frequently join the donor club. Illinois is an interesting one because people think of it as a fiscal mess—and its state-level pension system is—but on a federal level, Illinois is a massive contributor to the rest of the country.
On the flip side, Kentucky has historically been a huge net gainer. For a long time, Mitch McConnell was famously proud of his ability to "bring home the bacon," which is just a folksy way of saying he ensured federal tax dollars from other states were spent in Kentucky.
What Can Actually Be Done?
States are starting to get aggressive.
You’re seeing governors like Phil Murphy in New Jersey or Kathy Hochul in New York use these "donor state" statistics as leverage. They use them to demand more federal funding for massive infrastructure projects, like the Gateway Tunnel under the Hudson River. Their argument is simple: "We pay the bills, so you better help us fix our house."
But at the end of the day, the federal tax system is based on individual income, not state borders. As long as wealth is concentrated in certain geographic hubs, those hubs will always be donors.
How to Use This Information
If you live in one of these states that pay more than they get, you should probably be aware of how your local representatives are voting on federal spending.
- Check the SALT cap: If you’re a homeowner in a donor state, the SALT deduction limit is likely costing you thousands. Support for its repeal is a major issue in these states.
- Audit Federal Procurement: If your state is a donor, look for whether your state's businesses are getting a fair shake at federal contracts. If the money isn't coming back in the form of social services, it should at least come back in the form of jobs.
- Infrastructure Advocacy: Use the "balance of payments" argument to lobby for federal grants. If your state is subsidizing a highway in a state a thousand miles away, it’s only fair that the federal government chips in for your crumbling bridges.
Understanding this flow of money changes how you look at the "United" States. It’s not just a map; it’s a complex, slightly lopsided bank account where some members are always in the black and others are perpetually in the red.
The next time you see your federal tax withholding on your paystub, just imagine it’s taking a little road trip to a state you’ve probably never visited.
Next Steps for You
Check your own state’s standing by looking up the "Rockefeller Institute Balance of Payments" report for the current fiscal year. If you find you're in a donor state, look at your local congressional representative's stance on the SALT deduction and federal grant allocation. Understanding where your money goes is the first step in demanding it gets spent where it actually benefits your community.