Taxes, Politics And The Urban/Rural Divide

Michael Hicks directs the Center for Business and Economic Research at Ball State University. His columns appear in the Indianapolis Business Journal, among other publications, and while I have my disagreements with certain of his research perspectives, he often raises issues worth considering.

Last week, he focused on the urban/rural divide–and what we might call a “maker/taker” taxation paradigm.

Hicks began by cautioning against the prevailing image of rural America as a monolith. It’s an important caution: rural communities differ from each other economically and in the degree of diversity of their populations.

That said, they also share common challenges and characteristics.

Over the last century, America’s rural counties haven’t really grown. We have roughly the same number of rural residents as we did in Teddy Roosevelt’s administration, but urban America is more than five times larger. Four out of five Americans live in urban counties as designated by the Office of Management and Budget. To be fair, many of the urban counties have plenty of row crops in them, and rural counties have many small cities. Also, much of the growth in urban places came in formerly rural counties, as has always been the case. Still, urban counties differ in other meaningful ways that are likely to influence future policy. The second big issue is taxes and spending.

Rural places are large beneficiaries of federal dollars. By some estimates, per capita spending by the federal government is twice as high in rural than urban places. Most of this goes into agriculture subsidies, so rural communities probably don’t perceive the spending. Most may not actually benefit from it. Still, that is a legitimate critique offered by urban taxpayers, who foot most of the bill. Rural residents ought to be more conscious that these large subsidies provide few benefits for their community, while alienating urban taxpayers.

There’s no national study, but here in Indiana, rural places are also big beneficiaries of state tax dollars. This is per a 2011 study jointly authored by Ball State and the Indiana Fiscal Policy Institute. In that study, we estimated that rural places get more than $560 more per resident in taxes than they pay, while urban places get almost $160 less per resident than they pay. It is a plain fact that state and federal taxpayers subsidize rural places at the expense of cities and suburbs. What is not so clear is whether or not this spending makes a meaningful difference in the lives of rural people. I suspect it does not. This is almost certainly true in every other state.

Not only do state and federal distribution formulas advantage rural areas over urban ones, but Hicks notes that rural communities tax themselves less than urban places. In Indiana, per capita taxes are approximately ten percent lower in rural areas than they are in urban counties, and it is likely that this is true nationally.

As Hicks acknowledges, this pattern means that taxpayers in growing metropolitan places–places that need to repair and extend their infrastructures and municipal services–are subsidizing static and declining rural areas. He suggests there will be a reckoning–and certainly, in Indiana, with our ill-advised constitutionalized tax caps, that reckoning will come sooner rather than later, because the state’s urban areas are being starved of desperately needed resources.

What Hicks doesn’t mention is a significant political reason for this disparity in resources: gerrymandering.

In Indiana–and other red states where Republicans control redistricting– a majority of electoral districts have been drawn to ensure that they contain majorities of reliably Republican voters–and those voters are overwhelmingly rural. The result is that a super- majority of the state’s lawmakers are responsive to rural interests and dismissive of the needs of the urban areas that have been carved up by map-makers–despite the indisputable fact that the urban areas are the state’s economic drivers.

Talk about “makers” and “takers”!

It’s one more inequity we won’t get rid of until we get rid of gerrymandering.

15 thoughts on “Taxes, Politics And The Urban/Rural Divide

  1. One of the most recent examples of the inequity Sheila as mentioned, the Covid 19 epidemic!

    The $150 billion that was given to the states in the stimulus package that was passed earlier in the year, New York received $24,000 per positive Covid case, Alaska received 3.3 million per positive Covid case!

    Just a small example, but one very poignant nonetheless.

    Since you are speaking of Indiana, Indiana’s total dependency rank is number 8 on the list nationally with the score of 64.37. The states citizens dependency is 8, the state governments dependency is 11!

    Kentucky is number 2, Mississippi is number 3, West Virginia is number 4, Montana is number 5, Alaska is number 6, South Carolina is number 7, Arizona is number 9 Wyoming is number 10, Alabama is number 11, Louisiana is number 12,

    Then you have those that are least dependent; New Jersey is number 49, Illinois is number 45, California is number 41, Massachusetts is number 44, New York State is 24!

    The average blue states rank is 32.85, the average red state is 20.97. Of course there are some blue states that are in the taker category, and vice versa. On the whole, it’s really astounding!

    https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/

    And for Mitch McConnell, Kentucky receives $2.35 from the feds for every $1 it sends to the federal government!

    So, who’s doing a great job on making? And whose slurping at the federal trough and taking? If they want to complain about bailouts for blue states, maybe the blue states should quit sending money to the Fed and use it to get their own budgets in order! I think you hear quite a bit of screaming then, about inequity.

    “—Connecticut residents paid an average of $15,643 per person in federal taxes in 2015, according to a report by the Rockefeller Institute of Government. Massachusetts paid $13,582 per person, New Jersey paid $13,137 and New York paid $12,820.

    California residents paid an average of $10,510.

    At the other end, Mississippi residents paid an average of $5,740 per person, while West Virginia paid $6,349, Kentucky paid $6,626 and South Carolina paid $6,665—-.”

    Of course there’s plenty of pushback or blowback depending on how one would phrase it, but the numbers don’t lie, just follow the money!

  2. I believe in simple terms that my farmer grandfather had it right when he said that any farmer taking a government subsidy shouldn’t be in the farming business.

  3. Under normal circumstances I would say that reason dictates that we will have an opportunity to put up or shut up coming in January. Our circumstances are anything but normal and I have my doubts about reason being able to dictate anything these days.

    When Indiana first started issuing the “In God we trust,” license plates, I saw a guy with a bumper sticker that said, “In reason we trust.” I surmised that he must be the loneliest man in Indiana.

  4. So, if rural counties receive more Federal dollars than they chip in, why do they vote for Republicans? Republicans want to cut taxes for the rich taxpayers in the urban areas. Republicans abhor paying out subsidies or benefits to those who need them. Republicans – at least this current administration – created tariffs on farm products so that the Chinese and other customers went elsewhere for their agricultural purchases, thus reducing rural income even more.

    Why does ANYBODY with any sense of economics, fairness or patriotism vote for the political party that doesn’t care about any of those things that work and benefit the rural citizen… or anybody else except the rich donors?

  5. Right on, Vernon and John!

    First off, Mike Hicks is a Koch shill at a Koch university. It took an act of God to get them to return the racist John Schnatter’s (Papa John) donation. I pointed out Mike’s hypocrisy on Twitter, and he threatened me. His ego is huge, and he’s been recommending economic policy in Indiana for many years to benefit the Koch’s version of the Republican Party. Instead of admitting he is wrong, he changes course. Mike is never held accountable.

    I loved pointing to the “maker/taker” factoids when Trump said he wasn’t bailing out states led by democrats. Without those states, he wouldn’t have any money to subsidize the red states, including Indiana. Governor Cuomo schooled Mitch McConnell on this earlier in 2020.

    What’s even funnier is those voters most scared of socialism live in states already participating in socialism. Taking from the wealthier states and redistributing in their states. Once again, because they don’t understand the basic underpinnings of how things work, they are easily manipulated to vote against their own self-interests, time, and time, and time, again.

    Now you know why gerrymandering occurs, and we are ruled as a Kakistocracy. Greg Pence doesn’t even have to visit Muncie or participate in debates or public forums. So much for democratic rule. In fact, only one Republican showed up to public forums because it’s not in their best interest, and voters don’t care. It’s amazing!

  6. I find these discussions of the urban/rural divide somewhat exasperating because they are so ambiguous as to the working definition of “what is rural” and also as to how federal and state funds spent in rural areas actually benefit rural residents and workers.

    This web page does a nice job explaining how the federal government defines rural:

    https://www.ers.usda.gov/topics/rural-economy-population/rural-classifications/what-is-rural/

    The federal OMB classifies all counties into four groups: Metro-central, Metro-outlying, Non-Metro-micropolitan and Non-Metro-non-core. These last two are what researchers and policy makers most often use to define rural. But are they all really?  Take Kosciusko County…is it considered Metro-outlying (although pretty far from Ft. Wayne) or Non-Metro-Micropolitan? Either way, as the home base of the center of the medical implants and devices industry, and with high per capita and household median incomes, it’s sure not rural. On the other hand, Decatur county would likely be classified as Metro-outlying but is one of the most rural areas in the state, partially inhabited by Swiss Old Order Amish communities. You can’t get more rural than 1840.

    Secondly, there is the matter of federal and state funds and local taxation. It is well-known that the vast majority (80%?) of USDA subsidies and programs benefit large ag corporations and not mom and pop family farms and ag businesses. Moreover, even in rural areas the number of residents employed in agriculture is very low. A second area where this occurs is in transportation. A recent road re-construction project on US20 was done in LaGrange IN and those funds are considered an investment in a Non-metro-non-core county. But that project wasn’t done for the benefit of LaGrange County – it was done for the benefit of the trucking industry, which heavily travels US20 from Ohio to Illinois. Truck traffic volume on this road has exploded ever since Mitch Daniels privatized the IN Toll Road and gave the operator monopoly authority to raise rates to whatever “the market” can bear. But that’s a story on its own for another day. Extending I69 through Southern Indiana represents an astonishing $10billion or more in rural counties, but the real driver was, again, the large trucking and industry interests in Indianapolis and Louisville and well beyond – why I69 is called “the NAFTA highway”. It also helped turn a lot of formerly Democratic rural voters in Southern Indiana Republican.

    Then there is PK-12 education. Some years ago, again under the Daniels regime, Indiana began providing a fixed amount per student based on a formula to the public school corporations. This change did nothing to provide advantageous funding to rural schools over their urban counterparts. In fact, the reverse is true and where, on average, urban school systems command a higher percentage of Title I funds. In addition, Indiana provides nearly $300 million each year to support charter schools and private schools in the form of choice scholarships. Very little of that money is going to rural counties. Almost ALL of Indiana’s charter and private schools are located in urban metro central counties. 

    Last, there is the matter of taxation. While rural counties may, in fact, tax their property owners and residents less than metro counties, that is mostly because: 1) property values are lower, incomes are lower, and county government expenses are lower. Indiana touts it’s “Main Street” and other OCRA programs as investment in our “rural way of life” but these programs are what farmers call “putting lipstick on a pig” and they really don’t amount to much spending. 

    Education is another matter. Rural areas are seeing education costs sky-rocket as student populations decline and half-empty buildings built in the 60’s require extensive upkeep or replacement. In response many rural area school districts have democratically adopted higher property taxes through special referendums but many of these referendums failed as well (usually succeeding on a 2nd try with better marketing). Schools might just be the straw that breaks the camel’s back in rural communities and I see no reason why rural schools should be subsidized by their urban counterparts. That said, I ALSO don’t think rural schools should be subsidizing predominantly urban charter and private schools!  Indiana should fund ONE public education system, not three! 

    So, I’m ALL IN for a reckoning of urban/rural taxation and spending but one that is based on better definitions, analysis and honesty.

    If you got this far, THANKS for reading!

  7. AJ,
    I believe that would be the liberal basket of New Mexico! Or something to that effect.

    But, more than likely you already knew that answer because you wouldn’t have asked the question! And, if you looked at the seventh paragraph which is right before the link, I mentioned that there are some blue States in the taker category along with some red states in the maker category! 😑 So I don’t see what the point of of your question, numbers don’t lie! On the whole, the red States take more than they receive, the blue States support those who are a drain on society LOL! 😠

    After all, hasn’t that what Republicans have been screeching about for the past 🥜months during campaign season? Oh, wait a minute, it’s been the opposite! That the blue states are the cause of all the problems, and the bastions of society, the red states, are keeping the lid on everything, lol, paaaaaaleeez!😏

    Just think of all those gay, immigrant, baby killing, baby eating 😱 all around hedonistic 🤣Dirty dirty dollars 🤑 flowing in to the righteous-hearted 😇 red states! Morally, I would think that they would refuse to accept those tainted dollars! why don’t they? 🤔

  8. Patrick,

    I did get that far! Your comment was really well thought out, you dug a lot deeper, your opine really is some good food for thought.

    Thanx.

  9. Rural = white.

    We all know what’s going on here. Socialism is fine for white people. We don’t call it that, of course. It’s just being neighborly, taking care of one another, WWJD, etc.

    But for “urban” people? Daddy warned us about them folks.

  10. I forgot to mention that the OMB definition of urban/rural counties is only one of SEVERAL definitions used by the federal government.

  11. Vernon,

    Now you have the initial idea for another book! I have to admit Meadows and Minefields is pretty good, I saw you have another release, and, I’ll let you know my opinion of that one shortly.

    Maybe? Maybe! Maybe it’s the water? Maybe some parasitic infection from an alien world? Or maybe a genetic thing? 😏 So many questions, questions only enlightened novels can answer, lol!

    That’s virility 🤣

  12. Patrick, good comment I made it to the end. It is difficult to decide in a way, the amount of tax dollars spent on Rural vs Urban and all the shades in between. Roads transcend the boundaries among the the counties and states. I-80 for instance passes through a lot of rural land, it serves as a connector to major cities.

    Often over looked is the spending on the Military-Industrial Complex. Not only do you have the bases themselves that provide an economic benefit to the surrounding towns, there is also the equipment and hardware that is manufactured across the USA. Our elected officials will do their best to make sure that the widget part that is needed for fidget missile system is manufactured in their district, even if the fidget missile is not needed by the military.

    Factor in also the economic war between the states and counties within a state to give tax subsidies to locate some distribution center in Hooterville or in some major city.

    Then we have people like President Trumpet who pays less in Federal Income Taxes than I do.

  13. While I sympathize with the need of demographers to classify what’s impossible to with any accuracy, much of what can be concluded from their efforts misleads more than leads.

    That having been said, here’s another way to conclude something from this huge pile of assumptions. Cities and the businesses that live in them must adapt to these times, while whatever is in fact not cities are languishing in the previous century. Add to that the young people not born in cities typically end up there anyway. Hardly anyone moves from a city to the country.

    What’s perhaps odd about the politics of these times is that the Republican Party is led by the wealthy in the cities who have skillfully employed entertainment media to secure votes from the country (as well as customers for their products) while the workers who build the cities and do all of the work there are abandoned to the Democrat Party.

    Another wrinkle. Entertainment is fiction. Sometimes it’s labeled as “reality” but nevertheless it’s based on imagination instead of facts. So the recruitment means used by those at the tops of the towering city office temples to wealth redistribution employ fiction as the means to organize country folks as Republican voters. Those left to be Democrats can look out their windows and see current reality. They can’t be misled.

    No wonder seeing eye to eye has become impossible. The two parties exist in different worlds. Both can hardly even see the other world.

    The political resolution of two worlds under one government must be democracy and in fact the world of Democrats will continue to grow in population while the world of Republicans will continue to stagnate in size. That’s a problem for Republicans who must defeat democracy if they are to have power to sell to their investors and their voters. Of course those in the tower tops have a ready answer. Entertainment media.

    The real current world vs the make believe past. How can this end well?

  14. I have long argued that many of these small rural communities can’t afford the roads leading to and from their homes. How can you entice voters of rural States who get so much more than they pay to vote for another party who is there for the majority, urban voters. Does this guarantee the US Senate will remain in republican hands.

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