Red vs. Blue: Who subsidizes who?

It's an old debate over whether red states or blue states pay in more than their fair share of taxes verses what they get back. I've had the same discussion enough times that I want to preserve my usual arguments here for quick reference.

SALT (state and local tax) deductions are a de facto subsidy paid by low-tax red states to high-tax blue states to make the high state rates feel about one-third lower. Essentially, money that would have gone to the feds from a blue state gets shifted directly to that state rather than make the round-trip. But that doesn't get counted in the transfer.

One counterargument to this is that a state that taxes its people more to pay for its own programs is taking care of its own and doesn't need to ask for money from the government. But that sidesteps the fact that, to do it that way, someone else needs to pick up the slack. In effect, Texans pay more in federal taxes so Californians can pay less of what ultimately ends up in West Virginia.

Moreover, most figures that find blue states net makers and red states net takers count federal spending to federal agencies by where the check is cashed. But that is not money that is given to the states. It's money that the federal government just happens to spend in a particular place. That includes paychecks. Few would argue that buying office supplies is a subsidy to the retailer that sells them or that a paycheck counts as a subsidy to the state where the employee lives.

The same trick is often played with military spending. The military serves all Americans, not just those in states where the bases are located. But because most military bases are in southern red states, tricksters count that as a federal transfer to those states. That isn't to say there's no benefit to having military base in your state—Members of Congress negotiate to get them in their states for a reason—but characterizing them as the makers v takers argument does is akin to saying that having an Amazon warehouse in your town is a direct financial subsidy from Jeff Bezos to your community.

For my future refence, as well as yours, here is an article that gets into the more complex facets of the discussion.https://thefederalist.com/2017/11/17/red-states-tax-takers-blue-states-tax-makers/

Ultimately, the author finds that, to the extent that transfers even occur, they are miniscule and represent a manifestation of the progressive ideology that Democrats claim to espouse. But if they did "give in" and let Republicans have their way on taxes, it doesn't look like it would hurt red states in the way blue-staters might imagine.

And here's a thought from @Gitabushi worth remembering:

How you count stuff matters.
Part of the calculation, I think, is the resources get mined/grown in the rural area, but they credit the tax paid and wealth earned to the Blue State Metro HQ.
— Gitabushi the Anti-Fascist (@Gitabushi) September 25, 2020