In his escalating conflict with President Trump, Gov. Gavin Newsom suggested last week that California had some leverage over the federal government. “We pay over $80 BILLION more in taxes than we get back,” he wrote on X. “Maybe it’s time to cut that off.” His office followed up with a news release titled “Californians pay Trump’s bills.”
In case you missed it, California is the biggest “donor state” in the country — providing around $83 billion more to the federal government than it receives from the federal government — nearly three times as much as the next biggest “donor state.”
Though Mr. Newsom has since said he wouldn’t ask state residents to withhold federal taxes, he said he still felt the need to respond to Mr. Trump’s threats to cut off federal funding to the state and to the deployment of active duty military to Los Angeles amid protests.
The term “donor states” might be relatively obscure, but it captures a dynamic that underlies many national policy debates. And it taps into longstanding philosophical questions about whether it’s fair that some states prop up the country more than others — and whether that’s the right way to look at things in the first place.
Which states are donor states?
Most of the donor states are rich, blue states. Think Massachusetts, New Jersey, Washington and, yes, California.
The “recipient states” are mostly poor states like New Mexico, West Virginia and Mississippi. There are a few exceptions, like Virginia, a blue state whose residents receive, on net, about $12,000 in federal contracts and wages more than they pay in taxes. On average, residents from recipient states receive about $3,000 more than they pay.
There are a few different ways one could calculate these figures (more on that later), but the Rockefeller Institute has been tabulating estimates for years, and its numbers, shown above, are often the ones cited by politicians themselves.
What determines if your state is a donor or recipient?
It’s a simple equation: taxes paid to the federal government minus payments received from it. If it’s positive, you’re a donor state. If it’s negative, you’re a recipient state.
Each state’s math varies some, but here’s how the taxes paid roughly break down:
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85 percent Personal income taxes or social insurance taxes, like Social Security and Medicare
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15 percent Corporate income taxes, or smaller taxes like the estate tax or excise taxes on gas and alcohol
When a politician says a state is “paying the federal government,” it (mostly) refers to the money flowing from a state’s residents and private companies, not the state itself. Saying “Massachusetts pays $20,000 per capita” really means “all the federal taxes paid by individuals and organizations in Massachusetts averages out to $20,000 per resident.”
No matter what phrasing you use, a state like Massachusetts pays much more than West Virginia, which sends about $8,500 per resident to the federal government.
On the other side is payments flowing from the federal government to states:
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60 percent Direct payments to individuals, almost all Social Security and Medicare
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20 percent Grants to states to disperse; primarily Medicaid, the Temporary Assistance for Needy Families welfare program and things like highway funding and housing assistance
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20 percent Wages to federal employees or contractors
Direct payments from the federal government don’t vary as much as taxes do. West Virginia receives the most direct payments per state (around $12,000 per resident), while states at the bottom of the list, like Colorado or California, receive about $8,500.
Why do politicians use this term?
It can be a very useful political message, especially for representatives from wealthy states. Lynn Holland, a fellow at the Rockefeller Institute, says the first person to push the concept was New York Democratic Senator Daniel Patrick Moynihan in the 1980s and 1990s. New York was often criticized for wastefully spending federal tax dollars, especially regarding welfare programs, which Senator Moynihan felt was unfair.
“Other senators would use the language like New York was a parasite,” Ms. Holland said. “He was like, no — in fact, we are subsidizing other states, not the other way around.”
Gov. Newsom’s recent use of the term mirrors this sentiment. In a recent podcast, he used California’s “donor” status to argue his state was a “tent pole of the American economy” while pointing out Texas was a taker.
“It is a mythology that somehow red states are dominating and blue states are struggling,” he said.
In 2020, Gov. Andrew Cuomo used the term to defend federal coronavirus relief spending in New York, emphasizing that New York was “the No. 1 donor state,” while Mitch McConnell’s Kentucky was “taking our dollars out of the pot.”
Republicans from wealthy blue states use the term, too. Chris Christie, the Republican former governor of New Jersey, and Mike Lawler, a Republican congressman from New York, have both used the term to argue for increases in the state and local tax (SALT) deduction cap. Critics of the current cap say it penalizes people in high-income but high-cost areas.
What’s limiting about it?
It’s easy to use “donor states” to score political points, but it’s not necessarily useful beyond that. And aspects of it are flawed, arbitrary or counterintuitive.
If as part of the calculation you remove federal contracts and wages (you can make a fair argument they are payment for specific services and different from the taxes and entitlements that everyone participates in), then at least the number of states that are donors or recipients become more even.
Scott Hodge, former president of the Tax Foundation, a think tank that generally favors lower taxes, says the main reason New York is a donor state is its disproportionate number of millionaires, and the federal government has a progressive income tax.
If you applied the same methodology to individuals, he said, he would personally go from donor to recipient if he retired and became someone who paid no income tax and received Social Security. Similarly, a state’s donor status can change based on the makeup of its citizens, which it might not necessarily control.
“It’s nonsensical to think that a state should receive as much back as it sends in taxes, because you have all these other factors at work that drive these things,” Mr. Hodge said.
When politicians in New York or California push for a higher SALT cap, citing “donor state” status, they are arguing that the tax code should be changed. And that in turn would tip the donor/recipient status of their state to be more balanced.
In any analysis, you have to make choices of what to count and what to exclude, acknowledged Ms. Holland of the Rockefeller Institute. But because taxes and direct payments make up most of the math, the general conclusion (including California’s donor-state status) is consistent year to year and study to study.
There are some exceptions. During the pandemic, New York, which took the brunt of the first virus wave, became a recipient state because it got a large and disproportionate amount of relief money.
Finally, the institute uses states as the unit of comparison, even though it’s individuals who are sending and receiving money.
Could you ever make the states more equal?
If you wanted to make all donor and recipient states closer to break-even states, and you didn’t care about other objectives, you could try something like a flat tax. Right now the difference in net payments between New York and West Virginia is about $12,500 per person. If a flat tax were enacted in which each adult paid about $12,000 in income tax, the gap between those two states would shrink to under $5,000 per person while being budget neutral. (We’re using a flat tax purely as an illustrative example, whether or not it is politically desirable.)
Other options would require similarly immense changes to the government — drastic changes to taxes or entitlements — that are either hard to imagine happening or that would probably go against the stated priorities of a Democratic governor like Mr. Newsom.
Ben Blatt is a reporter for The Upshot specializing in data-driven journalism.
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