Texas More Dependent on Federal Money Than Other States

According to a new study by WalletHub, Texas gets far more money from the federal government than it sends in taxes.

Texans like to portray themselves as an independent, self-sufficient lot, a mindset exemplified in the state’s continued insistence on not being connected to the national power grid. However, a new study from WalletHub, a personal finance company known for putting out regular reports on various city and state economies, shows that the relationship between Texas and the federal government is remarkably one-sided.

The study looked how much each state sends the government in federal taxes, and compared it against money received in terms of federal contracts and grants. The data was pulled from the Internal Revenue Service, U.S. Census Bureau, USAspending.gov, and Bureau of Labor Statistics from 2022 and 2023.

Overall, Texas ranks 21 in federal dependency, just slightly above average. The most dependent states overall were Alaska, New Mexico, and Kentucky. California was the second-least dependent state. Only New Jersey ranked lower.

Interestingly, it’s not the average Texan who is driving the deficit, but the state government. The dependency level was determined by comparing the amount of money paid by individuals in taxes to the federal government against the number of Texans with federal government jobs.  In that regard, Texas ranked 41, near the bottom.

Instead, the above average score is driven by the state government’s massive reliance on federal funding in the form of grants and aid as a percentage of the state budget. Here, Texas ranks tenth.

According to the state comptroller, in 2016, Texas received a third of its annual budget from federal grants. Most of the money is allocated for health and human services; public and higher education; and business and economic development, primarily highways and transportation.

Texas governments have often tried to downplay the reliance on federal funds to improve the economic situation of the state. Governor Greg Abbott, in particular, has a habit of celebrating massive new projects worth billions of dollars without giving credit to the federal programs that made those projects possible. In 2022, Abbott cheered the started of new hydrogen fuel projects in the state without crediting President Joe Biden’s signature Inflation Reduction Act as the reason the project had enough capital to start in the first place.

The fact that red states are more federally dependent than blue states is a well established economic fact. The WalletHub story shows that red states are almost 50 percent more likely on average to need more federal money than they put in.

This is often related to threadbare social safety nets in red states, leaving the federal government to pick up the slack in areas like healthcare.

“Federal resources are more likely to support programs that are intended to increase societal benefits or reduce societal costs,” says Prof. Carolyn J. Heinrich of Vanderbilt University, who participated in the study. “For example, Title I funds in education are distributed according to the level of family economic disadvantage, recognizing that it is important to ensure that all children are healthy and well-educated. State resources may be prioritized for uses that yield benefits primarily within the state, such as economic development incentives.”