We often hear that the sparsely-populated states of the American interior are welfare magnets of a sort. In the latest issue of The Economist, this view is very lucidly expressed.

North Dakota has only 641,000 residents, or 0.2% of America’s population, scattered across more than 70,000 flattish square miles. Yet, like every other state, it has two senators; so attention must be paid. It is hard to know how to get it right though. North Dakotans revere the private sector, but have a state-owned bank and grain-elevator company. Though residents say they despise bloated federal budgets, in 2005 they happily received $1.68 for every dollar they paid in federal taxes.

This last sentence does a lot of work, but it also raises a lot of questions. One’s first thought is, Aha! Hypocrisy! Then, of course, there are a few other thoughts. If North Dakota is somehow gaming the system, how exactly is it gaming the system? The main “culprit,” if you can call it that, is a steeply progressive federal income tax. To be sure, all federal taxes are included in this calculation, including social insurance taxes, estate and gift taxes, etc. But the plain fact is that North Dakota has relatively low incomes, and so programs that transfer resources from high income individuals to low income individuals will tend to benefit North Dakota, just as they tend to benefit poor urban neighborhoods. (One can debate how beneficial some of these transfers really are in the broader context of the implicit marginal tax rates created by means-tested benefits, but that’s a separate issue.)

Does this mean that North Dakotans who are tax-sensitive and who sense that a lot of federal spending is wasteful are delusional? Let’s think through the composition of federal spending. NDSU offers some valuable statistics, supported, no doubt, by taxpayer dollars.

Federal expenditures decreased 11 percent from 2002 to 2003, but then increased 5 percent in 2004 and 10 percent in 2005. After a dip of 5 percent in 2006, total federal expenditures to North Dakota increased 7 percent in 2007. A sizeable proportion of North Dakota’s increase in 2008 can be attributed to increases in crop insurance payments, Medicare and crop disaster grant monies. In 2008, direct payments for crop insurance totaled $940 million, up from $629 million in 2007. Medicare payments increased from $713 million in 2007 to $817 million in 2008. Grant money for the crop disaster program increased from $3.7 million in 2007 to $179 million in 2008. … Crop insurance payments accounted for 13 percent of total funds to North Dakota in 2008 and Medicare accounted for 12 percent. Of the more than 400 grant programs receiving federal funds in North Dakota, two programs accounted for $643 million (9 percent) of all federal funds received in 2008. The Medicaid program received $401 million and highway planning and construction received $242 million.

It’s worth noting that the 27,000 member North Dakota Farm Bureau, one of the most influential organizations in the state, has called for ending ag government program payments. (When you consult the USDA’s Economic Research Service factsheet on North Dakota, you see that this represents a fairly large proportion of North Dakota farmers.) As recently as 2005, roughly three-fourths of North Dakota farmers received ag subsidies. But if the Farm Bureau’s announcement is anything to go by, a surprisingly large number of North Dakota farmers are not happily receiving federal dollars. And the crop disaster program can be characterized — perhaps — as a food security measure for the country as a whole. The White House intended to spend roughly vast sums to try KSM in New York city not as a sop to voters in the five boroughs, but rather to achieve certain national objectives, however questionable we might consider them to be. So yes, let’s sharply reduce ag subsidies, as the Farm Bureau recommends.

On the Medicare front, it’s probably worth mentioning that is one of the best states in the U.S. when it comes to holding down medical costs, as noted in this report from The Commonwealth Fund.

North Dakota ranks in the top quartile of states on The Commonwealth Fund’s State Scorecard on Health System Performance,which ranks states according to their performance across 32 key indicators of access, quality, utilization, equity, and health outcomes (Exhibit 1 and Appendix A).
The latest Dartmouth Atlas of Health Care finds that North Dakota is one of the most efficient states in treating chronically ill Medicare patients in the last two years of life, with costs more than 25 percent below the national average.

This doesn’t sound very profligate. Back to the NDSU report:

Of the $7.3 billion the federal government spent in North Dakota in 2008, nearly one-fifth of the funds went to Social Security ($1.3 billion).
“This amount is expected to dramatically increase as North Dakota’s baby boom population starts tapping into Social Security,” says Richard Rathge, State Data Center director. “The leading edge of the baby boom turns 65 next year.”

North Dakota has a relatively old population. Because Social Security is pay-as-you-go, this means that it is receiving a fairly large subsidy from younger states. But of course North Dakota conservatives are more inclined to favor reforms that move away from the pay-as-you-go model.

Procurement contracts (governmental purchases and contractual outlays) to North Dakota totaled $552 million and salaries/wages for federal employees totaled $872 million in 2008.

Some of this workforce can be let go without damaging core services. One assumes that some of the federal employees in North Dakota are employed at various military installations, including nuclear weapons facilities.

I think that if you went through this spending line by line, many North Dakota would still say that they favor lower taxes and smaller government, even if this meant trimming ag subsidies and changing the way that federal entitlement programs work. Affluent households in states like New York and Massachusetts, in contrast, do indeed send vast sums to the federal government. They also resides in states that have far more bloated and inefficient anti-poverty and health programs than North Dakota.

It’s not obvious that The Economist is using the right metric. Given North Dakota’s challenges, it could be that it is doing a far better job that net contributor states of putting federal dollars to good use. I wouldn’t make that claim without more data, but I’m skeptical about the glib assessment.

Here’s one place that can’t be accused of hypocrisy: in FY 2005, the District of Columbia received $5.55 for every $1 in federal taxes. And of course the District has a population not far off from North Dakota’s, one reason why many advocate statehood for D.C. In D.C., high-poverty neighborhoods are relatively dense and visible, and thus very different from the Indian reservations and other stretches scarred by rural poverty. Yet I’m guessing that the bulk of the federal spending in the District is not disbursed in the form of transfer payments to the inner-city poor.