From the NY Times today:
Region Gets Less Federal Money for Taxes Paid, a Study Finds
By Ronald Smothers
NEW BRUNSWICK, N.J. Oct. 28 – If the tristate region seceded and established itself as a separate country, it would replace the United States as the second-wealthiest nation in the world behind Luxembourg in terms of per capita income, according to a new study by Rutgers University.
Given their wealth and the nation’s progressive tax system, taxpayers in Connecticut, New York and New Jersey pay a disproportionately high share of the nation’s federal income and employment taxes, the study found. Those states rank 49th, 40th and 50th, respectively, in the amount of federal aid they receive per tax dollar, according to the study.
With 10.8 percent of the nation’s population, the tristate region had 13.1 percent of the nation’s personal income in 2003, and was responsible for 15.8 percent of the income and employment taxes collected by the federal government.
In New Jersey, the gap between what was sent to Washington in tax dollars and what came back to the state in federal assistance was $26 billion, an amount greater than the state’s 2003-2004 budget. New Mexico, on the other hand, got $2.08 in aid for every dollar of federal income tax its residents paid.
James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy and principal author of the study, said the figures underscore the responsibility that comes with affluence in a system of progressive taxation.
“To the degree that the money is going for valid public policy purposes, it is fine,” he said. “But if it goes for subsidies and unfair tax breaks for cowboy capitalists in other states, then it is not fair.”
The study,”Tri-State Affluence: Losing by Winning,” was the first, Mr. Hughes said, to view the three states as a group in analyzing the return they get for federal tax dollars. Similar studies for New York were done in the 1970’s as the city grappled with a fiscal crisis and sought a rationale for increased federal aid.
Joseph Seneca, a faculty member at the school and a co-author of the study, said the region has been the nation’s richest since the 19th century, and had “reinvented itself” as manufacturing declined to become a hub for service and financial businesses, which boomed in the 1990’s.
In the study, Connecticut ranked first in per capita income in 2003 at $43,173, New Jersey second at $40,427 and New York fifth at $36,574. The national average is $31,632.
In terms of median household income, New Jersey led the nation with $58,588 annually, 34 percent above the national average. Connecticut ranked third with $56,803, while New York was 17th with $46,195.
The study found that those higher incomes were not consistently spread throughout each state, but concentrated in a “wealth belt” made up of eight counties, including Manhattan, whose greater concentration of wealthy individuals outpaced all of the other counties in the nation in per capita income at $84,591.
The higher incomes were concentrated in Fairfield County in Connecticut; Somerset, Hunterdon, Morris and Bergen Counties in New Jersey; and Manhattan and Nassau and Westchester Counties in New York.
The wealthier areas of all three states were disproportionately dependent on the high salaries of the financial sector, said Mr. Hughes, and consequently were more sensitive to the volatile boom and bust cycles in the stock market. One consequence, he said, was that soaring tax receipts in the 1990’s during the economic boom financed an expansion of government functions that became “embedded” in state spending.
With the downturn in the economy and the stock market in particular between 2000 and 2003, this level of spending became harder to sustain.