Which states rely the most on federal funds?

Currently, the Trump Administration is in a battle with the courts to freeze federal spending of billions of dollars.

Acting Office of Management and Budget Director Matt Vaeth said the goal of the freeze is to reduce waste by reducing use of “Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies.” Programs targeted by the freeze include foreign aid, grants to non-governmental organizations, diversity, equity, and inclusion (DEI) initiatives, and environmental programs. Groups that have been hit swiftly by the funding freeze are farmers and rural businesses invested in renewable energy projects and global humanitarian efforts.

Another constituency at risk with federal spending in turmoil is state and local government. In our federal system, state and local governments rely on the federal government for a large proportion of their funding. This amount ranges, though, according to the Census Bureau. For instance, North Dakota receives less than 20% of their state revenue from the federal government. On the opposite side of the spectrum, Alaska receives nearly 40% of their revenue from the federal government.

State	Total State Revenue	Revenue from Federal Government	Percentage Federal
Alaska	$ 15,667,334.00	$    6,160,971.00	39%
Kentucky	$ 57,911,686.00	$    22,085,818.00	38%
Vermont	$ 11,232,873.00	$    4,237,732.00	38%
West Virginia	$ 22,420,270.00	$    8,389,354.00	37%
District of Columbia	$ 20,055,882.00	$    7,464,202.00	37%
Arkansas	$ 37,010,485.00	$    13,633,748.00	37%
Louisiana	$ 59,715,604.00	$    21,879,544.00	37%
Arizona	$ 89,076,443.00	$    32,415,044.00	36%
South Dakota	$ 10,549,378.00	$    3,771,835.00	36%
Rhode Island	$ 16,093,147.00	$    5,573,332.00	35%
Mississippi	$ 35,802,048.00	$    12,256,551.00	34%
Montana	$ 13,725,435.00	$    4,657,041.00	34%
Missouri	$ 68,260,987.00	$    21,715,343.00	32%
New Mexico	$ 42,233,407.00	$    13,421,271.00	32%
Oklahoma	$ 48,271,122.00	$    15,307,503.00	32%
Alabama	$ 64,777,600.00	$    20,229,466.00	31%
Maine	$ 18,317,563.00	$    5,666,935.00	31%
Michigan	$ 122,032,979.00	$    37,439,964.00	31%
Indiana	$ 85,344,253.00	$    25,378,951.00	30%
Pennsylvania	$ 171,577,131.00	$    50,519,392.00	29%
Ohio	$ 148,265,683.00	$    43,575,300.00	29%
Oregon	$ 68,290,949.00	$    19,908,513.00	29%
Nevada	$ 37,682,330.00	$    10,825,535.00	29%
Maryland	$ 89,612,692.00	$    25,199,517.00	28%
North Carolina	$ 129,216,170.00	$    36,222,639.00	28%
Idaho	$ 20,594,801.00	$    5,656,225.00	27%
South Carolina	$ 68,387,664.00	$    18,443,484.00	27%
Delaware	$ 15,569,155.00	$    4,166,816.00	27%
Illinois	$ 182,611,763.00	$    48,785,747.00	27%
New York	$ 442,057,068.00	$    117,525,817.00	27%
Florida	$ 242,920,560.00	$    63,400,621.00	26%
Massachusetts	$ 115,529,854.00	$    30,043,910.00	26%
New Hampshire	$ 15,874,696.00	$    4,112,203.00	26%
Texas	$ 346,395,677.00	$    88,920,949.00	26%
Minnesota	$ 85,328,127.00	$    21,901,865.00	26%
Tennessee	$ 76,677,348.00	$    19,651,768.00	26%
Wisconsin	$ 69,139,173.00	$    17,456,814.00	25%
Iowa	$ 46,012,142.00	$    11,209,676.00	24%
Washington	$ 120,010,103.00	$    28,146,897.00	23%
Georgia	$ 112,024,120.00	$    26,207,436.00	23%
Connecticut	$ 53,800,618.00	$    12,192,573.00	23%
Hawaii	$ 24,781,244.00	$    5,585,436.00	23%
Kansas	$ 39,440,642.00	$    8,795,251.00	22%
Colorado	$ 83,113,844.00	$    18,380,857.00	22%
Nebraska	$ 30,506,889.00	$    6,704,898.00	22%
California	$ 739,308,929.00	$    161,662,728.00	22%
New Jersey	$ 140,427,448.00	$    30,659,868.00	22%
Utah	$ 46,530,335.00	$    10,138,408.00	22%
Virginia	$ 111,838,708.00	$    23,433,620.00	21%
North Dakota	$ 14,589,875.00	$    2,818,355.00	19%

From this table, you can get an idea of which states rely the most on federal funding. For instance, let’s consider Alaska. Between national parks, conservation land, and military bases, 60% of Alaska’s land is federally owned. This not only requires federal funds to maintain this land, it also limits Alaska’s state and local governments’ ability to raise revenue through property taxation, which nationally makes up 27% of total state and local tax revenue.

Alaska also requires more federal investment due to its small population of less than a million people flung over the area of the country’s largest state. This requires high per-capita infrastructure costs on roads, utilities, and airports. On a recent project I did where I had to dig through a list of each airport in the United States, I recall seeing line after line of Alaska airports. This is because flying is often the most economical mode of travel due to the size of the state. And airports usually require federal funding to operate. The low population density also requires the federal government to invest in transportation, broadband, and other rural infrastructure.

Alaska also has a unique revenue structure compared to other states. Due to its vast oil resources, the state relies heavily on oil revenues, to the point that they share with New Hampshire the distinction of being one of two U.S. states without either a state income tax nor a state sales tax. The volatility of oil revenues and their lack of other state taxes make Alaska especially reliant on federal revenues for state budget stabilization.

Alaska is unique in the number of communities they have that are not connected to the rest of the continent by roads. Being off the road system requires goods be shipped in via air or water transportation, which drives up the cost of goods and services. This increases the state’s demand for federal health care, food assistance, and energy programs. In the event that Greenland became a part of the United States, it would suffer from similar problems.

Alaska relies on federal programs due to unique elements of its economy. Native American and Alaska Native programs bring federal dollars into the state. Alaska’s strategic Arctic location makes it a hub for military bases like Anchorage’s Joint Base Elmendorf-Richardson (JBER), Fort Wainwright in Fairbanks, and Fort Greely near Delta Junction. Its large coastline gives it a large Coast Guard and fishery management system and its high healthcare costs lead to high spending on Medicaid and health care subsidies.

Alaska experiences severe weather and earthquakes, making it a receipt of federal disaster assistance. Coastal communities are dealing with climate change, which makes the state a recipient of support for climate adaptation and relocation.

All of these above factors make Alaska one of the top states per capita for federal spending.

The two states that come after Alaska are two other rural states that are very different from it: Kentucky and Vermont.

Kentucky is a rural state with high poverty rates and a relatively low median income. This leads to higher reliance in Kentucky on programs like Medicaid, SNAP, and TANF. It also has a large population requiring medical assistance, which contributes to federal spending on Medicaid. Kentucky also receives educational support from the federal government in low-income areas.

Both Vermont and Kentucky, as rural states, deal with a lot of the same dynamics as Alaska. They have small populations per capita, giving them smaller tax bases and large areas to maintain services across. Roads, healthcare, and infrastructure cost more to provision per capita in rural areas than in urban areas. 

Vermont has some health care dynamics that lead to higher federal costs. One-third of the state’s population is enrolled in Medicaid and Vermont has one of the oldest populations in the United States, leading to higher medical costs. The state receives rural assistance in the form of transportation and infrastructure investment, agricultural subsidies, and energy efficiency projects.

Vermont has budget focuses that bring in federal dollars. Its investment in education, social services, and sustainability and conservation programs bring in federal dollars to help support them in those efforts. Vermont was a large recipient of COVID-19 relief funds. Funds supporting public health, hospitals, and economic recovery helped bolster Vermont’s economy during those years.

What does this tell us about states that rely on federal funds? Well for one, they are rural. Vermont, Kentucky, West Virginia, and Arkansas are all in the top 5 for highest percentage of revenue coming from federal sources and are also in the top 10 for most rural states. They also tend to be high-poverty: Kentucky, West Virginia, Arkansas, and Louisiana are in the top 10 states for reliance on federal funds and for poverty rates.

In an era of uncertainty around federal funding what we do know is this: different states will be impacted by uncertainty more than others depending on their reliance on federal funds.

A defense of "sin taxes"

Ohio Gov. Mike DeWine’s final two-year budget proposal, released earlier this month, has caused quite a stir.

The headline many have seen about it over and over again is the changes the budget recommends to taxes — namely proposed increases to taxes on cannabis, cigarettes, and sports betting.

These taxes are often given the pejorative label of “sin taxes” because they cover “vices” that are potentially more palatable to tax than say…income or general sales. 

The phrase “sin tax” smells a lot like the rebranding of the “estate tax” as a “death tax.” It’s a way to get at our gut and rankle that libertarian impulse that we as Americans almost all have whether we like it or not. Who is to say what constitutes a “sin” or not? Certainly not the government. Don’t tread on my Marlboros!

The problem with this framing is that it obscures a valuable tool of taxation: to correct social problems.

The typical function that we ascribe to taxes is to raise revenue for operations of government. If that were the only way we could use taxes to a good end, the answer for how to raise taxes is pretty straightforward: cover as many different economic transactions as possible to make taxes as efficient as possible then rebate either cash or services back to low-income households to offset the regression of the system.

The problem with this line of thinking about taxes is that it is both excessively narrow-minded and a century behind the times.

When Teddy Roosevelt instituted the national estate tax, he saw it as a way to promote equality of opportunity. Why should your wealth be a function of your parents’ wealth? An estate tax reduced how much wealth you could receive from your parents, which had an impact on inequality.

At the same time, Economist Arthur Pigou was promoting what later became known as “Pigouvian taxation,” the idea that we can tax economic transactions that lead to “externalities,” or social spillovers that cause harm to others.

This became the theoretical basis for carbon taxes. If we want to reduce the release of carbon into the air, we need to bring the private cost of carbon pollution into line with the social cost of carbon pollution.

This is how taxes on cannabis, cigarettes, and sports gambling work.

A study released by the Federal Reserve Bank of Kansas City last year found state cannabis legalization caused double-digit increases in substance use disorder, chronic homelessness, and criminal justice involvement. Cigarette smoking leads to hundreds of millions of dollars in health care spending and productivity losses every year. Sports betting is causing household fiscal instability and fueling addiction.

Yes, increasing taxes on cannabis, cigarettes, and sports betting does raise some equity concerns. The amazing thing about Pigouvian taxation, though, is that by using the revenue raised you can promote efficiency and equity at the same time by funding programs that support low-income people like child tax credits…just like this current budget does.

You cannot build a state budget on a foundation of Pigouvian taxes — these three taxes will only raise 4% of total tax revenue in DeWine’s FY 2026-2027 budget. But if we can curb social problems and fund programs at the same time, why wouldn’t we?

This commentary originally appeared in the Ohio Capital Journal.

COVID's lasting impact on learning

Five years ago, I was a senior at Bates College spending almost all of my free time trying to finish up my economics thesis. My concerns at that time were 1: Graduating, 2: Thinking about grad school, and nothing else. Less than a month later, I had flown back to Minnesota and the only thing I was worried about was COVID-19. 

I did still end up finishing my thesis and going to grad school, but like so many other things during those early years of the pandemic, I had to be entirely remote while they happened. 

I’m someone who works well independently and is extremely comfortable with computers, so this adjustment was not as hard for me as I’m sure it was for others. Despite this, I struggled mightily in that first semester of grad school. I had to completely overhaul all of the systems I was familiar with to make my education successful. I would say that switching to remote education had an impact on the quality of my learning.

For many students, the shock of the pandemic was much more difficult to adapt to. Some students might not have had the high-speed internet access needed to participate in a remote classroom. Some students might not have had computers at all. 

Add on to that the missing social element of schools and the general stress and anxiety caused by the worst global pandemic in over a century and it should not be surprising that there was a significant decrease in standardized test scores across the country. 

Researchers Tom Kane and Sean Reardon started the Education Recovery Scorecard to track these learning losses. They found that between 2019 and 2022, the average third through eighth grader lost roughly half of a grade level of math achievement and one third of a grade level of reading achievement. These losses were more pronounced in lower-income and urban school districts. 

This is something Scioto Analysis has covered in the past. Our 2020 cost-benefit analysis on the subject found that the risk of death reduction from school closures was less valuable than the damage done to students’ academic performance (and we even got some attention for this study in the Wall Street Journal).

Unfortunately, conditions have not been improving. In their most recent report, they found that the average student is even farther behind in reading than they were in 2022, now about half a grade level behind. 

As was the case in 2022, these results are not uniform. Some school districts have recovered to pre-pandemic levels of achievement. Districts in the highest income decile were four times as likely to have recovered as districts in the bottom income decile, again highlighting how important income is to school achievement. 

One problem preventing recovery efforts is chronic absenteeism. Although data on absenteeism is not super robust, researchers have found that absenteeism rates are higher post-pandemic than they were pre-pandemic. Absenteeism rates can exacerbate disparities as well: lower income school districts have higher rates of absenteeism compared to high income districts. 

These researchers also explain how federal relief dollars have impacted education recovery efforts. Districts that spent more money on academic catch-up programs (e.g. tutoring, summer school, etc.) have seen faster recovery rates compared to districts that spent less. 

Kane and Reardon make a point to highlight the policy implications of their research. They’ve identified a problem: student achievement has not recovered from the pandemic, and they are looking at some of the reasons why so we can start to address them. 

They mention on their website that despite the evidence that the average student is not achieving at what we expect for their grade level, 90% of parents think their child is at or above grade level. Policymakers and analysts need research like this to understand why students are underperforming, and to find solutions to help get children back on track.

Ohio Gov. DeWine’s budget proposal could transform state poverty and public health landscape

I will have to admit: I’m kind of stunned.

This week, Ohio Gov. Mike DeWine proposed a policy that would both reduce child poverty and save lives. His final biennial budget proposal includes a $1,000 child tax credit for low-income and middle-class families with young children, paid for by a tobacco tax increase that would nearly double the state’s cigarette tax.

This policy couples a proven poverty-fighting tool with a tax that discourages smoking, the leading preventable cause of death in Ohio. I am not exaggerating when I say this could be one of the most consequential anti-poverty and public health measures in recent memory all wrapped up in one policy change.

As a policy analyst who focuses on taxes, poverty, and public health, I think a lot about these two policies, and there are few policies I think could be more transformative on their respective fronts than child tax credits and tobacco taxes.

Child tax credits are incredibly effective tools to tackle poverty head-on. They’re so effective that during last fall’s presidential election both campaigns embraced the idea.

From an economic standpoint, child tax credits are effectively giving cash to families who are supporting children. In 2019, a consensus group of economists from across the political spectrum released a report commissioned by Congress on how to reduce child poverty. Child allowances like child tax credits were their top recommendation.

At the time it seemed like a “maybe someday” sort of policy, but with the COVID-19 pandemic, a policy window opened. Congress passed the American Rescue Plan, which nearly doubled the federal child tax credit for young children and increased the child tax credit for other children by 50%. This policy pushed poverty rates down to their lowest rates on record and nearly cut the U.S. child poverty rate in half.

Due to Joe Manchin’s unwillingness to extend the credit beyond 2021, however, the expansion expired in 2022 and poverty rates rebounded that year.

Since then, states have embraced child tax credits as tools to support families with children. A total of 16 states have their own child tax credits, including states like Arizona, Idaho, Oklahoma, and Utah.

From a public health perspective, tobacco is one of Ohio’s worst problems. Tobacco kills three times as many Ohioans per year as drug overdoses and Ohio is in the top five states in the country for tobacco use prevalence.

Tobacco use also has economic consequences, costing our state health care system billions of dollars a year and hampering statewide productivity by billions of additional dollars each year.

Tobacco taxation is well-established as the most effective and efficient way to reduce tobacco consumption, particularly among youth. So for those of us who care about fewer people dying prematurely in Ohio, we tend to get excited about any talk of tobacco taxes.

Ohio has a chance to take a bite out of poverty and finance it with a tax that will save lives. Now we have to wait to see if the General Assembly likes this idea as much as the governor, and poverty and public health researchers do.

Federal data is vital to good policy analysis

Last week, Robert Santos decided to step down as the director of Census Bureau. This decision comes at a time when the Trump administration is making a concerted effort to remove public data from government websites due to a perceived connection to diversity, equity, and inclusion. 

The Trump administration’s war on DEI practices has escalated. It is no longer about stopping workplace sensitivity trainings or changing hiring practices, it is instead focused on changing the way people in this country understand people that are different from them. 

Things are changing quickly, and it’s difficult to predict what the extent of these data removals will be. For example, the Center for Disease Control’s Behavioral Risk Factor Surveillance System (one of the best publicly available health databases) was temporarily taken down. As I’m writing this on Wednesday, February 5, parts of it are back online. 

I imagine that most people who read blog posts on sciotoanalysis.com understand the importance of this kind of data, but the severity of this situation is worth repeating. Policymakers, non-profit organizations, academic researchers, and others rely on the availability of high-quality public data. 

Fortunately, researchers have been working  to download as much data as possible in the event things do start to get taken offline. We won’t completely lose the data that already exists, even if we might not be able to use new data going forward. 

That being said, it is hard to imagine that over the next four years, the newly collected public data is going to be of the same quality. If I had to guess, I would say that we probably aren’t going to have nearly as precise data on things like gender, race, sexuality, etc.

It might be the case that those questions are removed entirely from government-run surveys like the American Community Survey. I am optimistic that those surveys won’t entirely disappear. Much of this optimism comes from the fact that I can’t even begin to imagine how damaging it would be to have the decennial census be the only piece of publicly collected national data.

Still, a lot of harm will come from failing to collect adequate data. One example that comes to mind is thinking about how the Census Bureau records race data. Currently, there are only six race categories: White, Black, Native American, Asian, Pacific Islander, and Other. This does not do a good job of capturing the different racial identities people in the United States have. 

The Census Bureau decided in 2024 that it would add North African/Middle Eastern as a racial category, an important change that would have helped improve our understanding of racial dynamics. I don’t know if the current version of the American Community Survey is already in progress with this updated race question, but I would be very surprised if this data ever became public. 

As a researcher, it’s hard not to be discouraged by the thought of losing so much data over the next four years. But I want to end on a slightly more optimistic note. 

Yesterday, I was talking with a community group of data scientists. Near the end of our chat, this topic came up. While people were still extremely nervous about whether or not we would continue to have access to high quality data, the people in that meeting were still very optimistic. People were sharing the data repositories they knew about that wouldn’t be taken down and talking about how we might address these shortcomings going forward. 

Right now, we don’t know to what extent we are going to lose data. As statisticians, it is our job to ensure that going forward, we don’t leave groups behind just because we are losing data about them. We likely won’t be able to rely on the Census Bureau as much in the short-term, but we can still explore effectiveness, efficiency, and most importantly right now, equity.

Ohio economists: school funding cuts could increase inequality

In a survey released this morning by Scioto Analysis, 13 of 16 economists surveyed agreed that cutting school funding in Ohio would significantly increase inequality in Ohio. Over the last four years, Ohio's public schools have relied on the Cupp-Patterson Fair School Spending Plan to provide over $300 million in funds per year. This bill was initially supposed to provide funding through 2027, but the new Speaker of the House has indicated that he would like to cut this funding. If these funds are cut, it would reduce spending on public schools by about $650 million over the next two years.

As Kathryn Wilson from Kent State points out “The purpose of the funding was to have less reliance on local property taxes. There are large differences in per-student-spending across districts within Ohio. Reducing this funding will increase those gaps and increase inequality.”

Additionally, 13 of 16 economists agreed that these spending cuts would significantly reduce Ohio’s future economic output. Bill LaFayette wrote in his comment “School spending is not an expenditure, it is an investment in our future workforce. If we don't have the revenue to support our schools, colleges, and universities adequately, perhaps we should rethink some of those tax cuts.”

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here.

What can we learn from airport data?

We are currently working on a project at Scioto Analysis where we are using data on the number of people traveling through airports to make some tax revenue estimates. That project is interesting for a whole host of reasons, but one especially fun part has just been poring over this airport data.

We compiled data from Ohio and North Carolina on the monthly passengers flying into every airport in the state from 2002 to 2024. Since these numbers are a little difficult to pull out and use, we thought it would be valuable to share some of the observations we had about this dataset.

The COVID-19 impact has faded

The lockdowns that happened in 2020 as a response to the COVID-19 pandemic had a major impact on all forms of travel. For most airports, this meant a drop in the total number of passengers arriving by 60% - 70% in 2020 compared to 2019. 

In recent years, most airports have returned to their pre-pandemic levels of visitor traffic. For most airports, they achieved this in 2023. During 2024, we saw some of the regular growth that more closely follows the trends before the pandemic. 

This will be an interesting statistic to track going forward. We can learn a lot by understanding how people move around. 

Cincinnati was a major airport in the early 2000s

In 2004, Cincinnati had multiple months where over 1 million people passed through the airport there. By 2010, monthly visitors were down to under 400 thousand. The Cincinnati airport has hovered around this same number of monthly visitors since then, keeping it in line with the airports in Cleveland and Columbus. 

The main reason for this change was the merger between Delta and Northwest airlines in 2008. After the merger, Delta cut flights to Cincinnati. This had such a significant impact on the airport that it closed one of its terminals in 2009.

What drives airport traffic?

In our analysis, we are specifically comparing air travel between Ohio and North Carolina. Looking at these states, you see that North Carolina has had over double the total number of air passengers landing in their airports compared to Ohio over the past couple of decades. Most of this is driven by the airport in Charlotte, which by itself nearly matches the combined monthly passengers landing in Cincinnati, Cleveland, and Columbus. The Raleigh-Durham airport also has about 50% more traffic than any of the large airports in Ohio.

So, why is it that two states that have very similar populations have such different air traffic numbers?

One thought I had was that North Carolina might have more tourists than Ohio. The intuition behind this is that tourists often travel further distances to get to where they are trying to go, and as such may be more likely to travel by plane. The issue with this is that according to the Ohio Department of Development and the North Carolina Department of Commerce, Ohio has more tourism spending than North Carolina!

This doesn’t mean that tourism is not part of the reason why North Carolina has more air traffic than Ohio, but it probably means it’s not the main explanation. 

One thing that could be driving this is people flying to Charlotte to get to destinations in South Carolina. This is purely speculation on my part, but there must be some reason why there are so many more people flying to North Carolina than Ohio.

Is Massachusetts ready for a candy tax?

Last week, Massachusetts Governor Maura Healy released her budget proposal for the upcoming year and she has an unlikely commodity in the crosshairs with her new budget: candy.

Her new proposed budget includes a provision to remove the exemption for candy from the state sales tax, making it no longer a nontaxable item and subject to state sales tax.

While a tax on candy may seem like a frivolous matter, there is more at stake here than jobs for the state’s Oompa Loompas. CBS News reports removing the sales tax exemption for candy could raise $25 million for the state to spend on investments the governor wants to make in transportation and education.

The search for new sources of revenue is likely the origin of this policy change. Needling around the tax code and finding politically palatable ways to raise tens of millions of dollars of revenue is no easy task, so when a policymaker finds an opening, she often is willing to take it to raise revenues for programs she wants to fund.

That is why the governor says “this isn’t about a new tax.” This is “about” expanding the definition of what is funded under a tax that Massachusetts already has and a tax that is probably the broadest tax in the state: the state sales tax.

Despite the political motivation of the policy change, conventional wisdom among economists is that broader taxes are better for the economy. An exemption of something like candy from the state sales tax creates an incentive for people to purchase it relative to other goods that are subject to the state sales tax. If the state sales tax applies as widely as possible to many forms of purchases of goods and services, the incentives will be less distortionary and the economy will function most efficiently.

This is why many economists are wary of sales tax exemptions like exempting tampons from taxation–they narrow the tax base and create distortions in the economy.

But sales tax exemptions can have certain outcomes that policymakers may desire. One of them is offsetting the regressivity of sales taxes. Sales taxes fall more heavily on low-income households than on upper-income households since low-income households spend a larger percentage of their income on consumption. Carving essential goods like groceries, healthcare, and utilities out from sales taxes can help address this regressive aspect of a sales tax.

Candy falls under this category. A study by researchers at the University of Michigan and the University of Alabama-Birmingham found people living in lower-income neighborhoods and in areas without local food stores eat more snacks and sweets than those in higher-income areas. This means that subjecting these goods to taxation will likely mean the tax will fall more heavily on low-income households than on high-income households.

Those who are wary of specific exemptions to sales taxes argue that a better way to deal with the regressivity problems of a tax is to offset it with a rebate system. If you fund programs like an earned income tax credit with sales taxes, you can give cash to low-income people without giving an exemption to all families. This can be a more efficient way to handle the regressivity of a sales tax than exempting categories of goods from the tax altogether.

Another consideration with the taxation of candy is the public health impacts. Ten years ago, many local jurisdictions were making headlines for taxing soft drinks, citing their public health impacts. Making candy subject to sales taxes could be a way to reduce the public health impacts of candy.

Some researchers have found that dental guidelines around avoiding foods that stick to your teeth have little impact on consumers because consumers do not know which foods stick to their teeth and which do not. Candy consumption can also be a cause of weight gain, which can lead to a host of health conditions that can threaten lives. Candy and sugar consumption can also lead to cardiovascular disease and can even lead to nutrient deficiencies.

Correcting for these effects of candy consumptions could be seen as promoting economic efficiency if they lead to better health outcomes. If parents are feeding candy to children and that is leading to tooth decay, weight gain, cardiovascular disease, and nutrient deficiencies, then levying a tax on candy could help shift spending away from candies toward substitutes with less negative health impacts. Previous work on taxes on soda have shown these taxes lead to reductions in consumption.

Another way removing the exemption for sales taxes for candy could promote economic efficiency is by curbing economic internalities, or irrationalities people have that lead them to make choices they would not make in sound mind. If candy consumption is linked to compulsive behavior, then taxing it could help bring people’s actual consumption of candy closer to their clearheaded goal consumption levels.

Similarly, a tax could help correct information problems. If information tools like nutrition labels are not effective at helping people understand the health impacts of candy, then a tax could be a more effective way at reducing consumption to levels that someone would consume at with better information.

Another consideration for policymakers weighing a candy tax is the administrative feasibility of such a tax. The definition of “candy” is slippery and a line will have to be drawn at some place to define certain foods as “candies” and other foods as “not candies.” Where this line is drawn will impact revenue, the efficiency of the policy, the effectiveness of the policy, the equity ramifications of the policy, and the public health impacts of the policy.

From the perspective of an analyst, I am curious to see what the impacts of this policy will be. Will this increase in taxes lead to precipitous decreases in candy consumption? Will there be detectable public health impacts? Will revenues raised exceed expectations? All of these are questions economists should be prepared to answer if this policy change goes into effect. Because this is where the rubber meets the road in public policy analysis: determining how changes like this impact real people’s lives.

Original Research: Bicycling and Trails Contribute $1.4 Billion to Iowa’s Economy

On Saturday, the Iowa Bicycle Coalition and Scioto Analysis released a report highlighting the economic and health impacts of bicycling and trails across Iowa. Analysts estimate in the report that bicycling contributes $1.4 billion annually to the state’s gross product, supports over 21,000 jobs, and generates $690 million in wages.

The study, conducted with data from over 2,500 surveys and data from government and nonprofit organizations, investigated the economic and health impact of bicycling and trails in the state.

Iowa has over 2,000 miles of multi-use trails and approximately 900,000 state residents cycle each year. The report underscores that cycling and trail use is not just a leisure activity but also an economic driver for the state. Retail trade and food services emerge as the biggest beneficiaries, with recreational riding alone accounting for over half a billion dollars in retail trade revenue annually.

“Bicycling is not only a leisure activity. It’s also a contributor to a strong economy and promotes public health,” said Rob Moore, Principal for Scioto Analysis. “From creating jobs to promoting healthier lifestyles, the benefits of bicycling accrue to communities and businesses across the state.”

Analysts found evidence that cycling reduces obesity rates and leads to fewer cases of diabetes, high blood pressure, and deadly cancers, saving millions in healthcare costs and saving lives. It also reduces incidence of excess BMI and promotes mental health. Bicycle commuters promote a more eco-friendly commuting lifestyle, preventing as much as 1,500 tons of carbon dioxide from being released in a given year.

The report demonstrates the value of sustained investments in cycling infrastructure to enhance safety and accessibility, particularly as Iowa ranks in the bottom ten states for cycling safety and laws. If cycling is supported and safe, the economic, health, and environmental benefits it contributes will only grow.

Mapping concentrated poverty in Minneapolis-St. Paul

Back in 2019, my colleague Rob wrote a blog post looking at areas of high poverty in Columbus. This blog post still resonates with a lot of people who understand the history and context of Columbus, and can see how the current concentration of poverty reflects the history of the city. 

Since I grew up and now currently live in Saint Paul, Minnesota, I wanted to do this exercise with my own city. I plotted each census tract in Ramsey and Hennepin counties (the home of the cities of Saint Paul and Minneapolis, respectively), highlighting the tracts with a poverty rate of at least 20%. You can see the whole map here.

I-94

Anyone who knows the history of Saint Paul knows that the construction of I-94 in the late 50s completely changed the fabric of the city. The most famous example of this disruption is the demolition of the Rondo neighborhood, one of the few predominantly Black communities in the city. Today, much of the poverty in Saint Paul follows the I-94 corridor, largely on the North side. The Saint Anthony Park, Midway, Frogtown, and Payne-Phalen neighborhoods all have multiple census tracts with over 20% poverty rates. 

In Minneapolis, the I-94 corridor was built through the heart of the Black community in the North neighborhood. Both North Minneapolis and the Rondo neighborhoods were historically redlined parts of the Twin Cities. Like the old Rondo neighborhood in Saint Paul, the disruption caused to North Minneapolis by the creation of I-94 is still felt to this day. That legacy of disruption has resulted in areas of high poverty for many people. 

West Side

Confusingly, directly South of downtown Saint Paul lies the West Side neighborhood (named because it is on the West bank of the river). This neighborhood currently is home to one of the city's largest Mexican populations, and is one of the few neighborhoods of concentrated poverty that is not along the I-94 corridor. 

Seward to Uptown

South of downtown Minneapolis, there is a band of high poverty neighborhoods that stretch from the Seward neighborhood near the river, through the Ceder-Riverside neighborhood, and almost to Uptown and Lake of the Isles. There is a sharp cutoff at Lyndale Avenue, where people living in the Whittier neighborhood to the East experience much higher rates of poverty than their Uptown neighbors to the West. There is an especially sharp disparity when we look at the people who live immediately around Lake of the Isles, one of the wealthiest neighborhoods in Minneapolis.

University of Minnesota

The part of Minneapolis that is on the East bank of the Mississippi river is largely divided into two chunks separated by I-35W. There is Northeast Minneapolis and its many neighborhoods in the North, and the neighborhoods surrounding the University of Minnesota in the South.

Of these two sections, there is much more concentrated poverty surrounding the University campus to the south. These neighborhoods also fall along the I-94 corridor, creating a continuous network of high poverty areas that stretches from downtown Saint Paul all the way to North Minneapolis. 

Suburbs

The majority of the suburbs surrounding the Twin Cities have very low poverty rates. Still, there are a few census tracts that have poverty rates over 20%. There are neighborhoods in Bloomington, Eden Prairie, Saint Louis Park, and Brooklyn Park that all have very concentrated poverty rates.