For Illinois residents, a recent study by Wallet Hub yields both good and bad news. While we can take pride in the fact that Delaware is the only state to be less dependent on the federal government, that has a big consequence — we have the fifth-highest tax rate in the country.
How are state tax rates and federal funding tied together? Do states that tax residents at lower rates do so because they’re being propped up by the federal government? That’s one of the things Wallet Hub looked at.
The idea of the American freeloader burst into the public consciousness when #47percent started trending on Twitter. And while the notion is senselessly insulting to millions of hardworking Americans, it is true that some states receive a far higher return on their federal income tax investment than others. Just how pronounced is this disparity, and to what extent does it alter our perception of state and local tax rates around the country? WalletHub sought to answer those questions by comparing the 50 states and the District of Columbia in terms of three key metrics: 1) Return on Taxes Paid to the Federal Government; 2) Federal Funding as a Percentage of State Revenue; and 3) Number of Federal Employees Per Capita.
The study found there is a 34.4 percent correlation between tax rates and a state’s dependency on the federal government. As dependency rises, the less likely the state is to charge high tax rates (but it looks like Illinois wants to make its “temporary” income tax hike permanent).
Here’s the state-by-state breakdown of federal government dependency (the lower the number, the less dependent the state is on the federal government):
They also broke it down based on which party each state leans toward:
One other interesting fact is that wealthy states usually are the ones receiving the most federal support.
Via Wallet Hub