Who's subsidizing whom? Varney's crusade on CA reverses reality


Viewers of Fox Business must think California is just the biggest spendthrift of our 50 states. The way Stuart Varney tells it, those greedy Californians, by taking "federal taxpayer money," are just robbing the rest of us -- particularly "the hicks who live in the Midwest" -- blind!

But in discussing California's would-be federal subsidies, Varney isn't telling the whole story. In fact, he's got it completely backward.

During the November 16 episode of Varney & Co. on Fox Business, Varney interviewed Gov. Arnold Schwarzenegger's Press Secretary Aaron McLear about Schwarzenegger's current efforts to balance California's budget. He asked McLear if he would take a pledge to "not take one more dime from federal taxpayer money going to California." Then he continues: "You guys in California, you've been making fun of...the hicks who live in the Midwest...you've been making fun of them. Now you want their money."

Incensed, McLear told Varney that "[California is] what is called a donor state. We get less on every dollar back from the federal government than any other state. States like Mississippi and Alaska get more back from the federal government for every dollar they spend."

McLear is right.

According to the nonpartisan Tax Foundation:

States send federal taxes to Washington and receive federal spending in return. However, some states benefit more from federal taxing and spending policies than others. Some "beneficiary" states receive a positive return from Uncle Sam, making other states "donors" who pick up the tab. The most important factor determining whether a state is a net beneficiary is per capita income. States with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax.

Where does CA fall on this scale? According to the Tax Foundation's latest data, from 2005, when states are listed in the order of federal tax dollars received per tax dollars paid, California ranks #43. In fact, the state got less than it sent Uncle Sam: for every dollar California sent the federal government, it received $.78.

Using the Tax Foundation data, Visual Economics produced a map of the U.S. to show how much federal tax money each state gets. It's clear that Varney is 100 percent wrong to suggest that Californians are somehow swindling money from Midwesterners--if anything, federal tax dollars are generally flowing the other direction.

So then why is Varney picking on California? As McLear points out, most states face a budget shortfall right now -- he tells Varney 40 states face a deficit, though a Bloomberg article in June said that number is now 46. Varney gives us a clue about his choice of target when he leads off the story:

But [Schwarzenegger's] chances of pushing through, as a lame-duck governor, through -- in a state which has just voted solidly Democratic, it's very unlikely that he will get $6 billion cuts, now, isn't it? Let's be realistic, Aaron.

Hmm. Maybe this story has more to do with California's politics than alleged payouts. Or maybe it's just about the unions. After all, Varney has already wrongly blamed union pensions for California's budget crisis.

Posted In
Economy, Budget
Fox Business
Stuart Varney
Varney & Co.
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