Comment by rayiner

> you zoom out from individual programs and look at the overall fiscal balance

Right, but the overall fiscal balance is driven by the revenue side, not the spending side. More specifically, it’s driven by revenue from the top 50% of households, who pay 90% of all federal income taxes. New York pays more than Mississippi because it has more high income households than Mississippi. You can think of it as a subsidy, but we don’t usually think of it that way. By the same logic, asian american subsidize white americans, and white americans subsidize hispanic americans. Any time you draw a line around a higher income group, that group will pay more taxes. We typically wouldn’t call that a subsidy from one group to the other.

The point at which a tax system becomes redistributive rather than “fair” is hard to pin down, and a little (but not completely) arbitrary. If society decides that the federal government should provide social support for kids with disabilities, how do you pay for that? Under your math, anything that isn’t a head tax (equal per person) is a subsidy to lower income states like Mississippi. Even a flat percentage rate tax would mean that New York would end up paying more into that system, per capita, than Mississippi. But most people would call a head tax very regressive. Zooming out further: who benefits the most from a naval base in Mississippi? Your math presupposes that Mississippi gets all the benefit. But there is a strong argument that California and New York and their finance-based industries benefit more from the U.S. military.

Putting all that aside, the systems we are talking about in Europe aren’t just progressive taxation. The EU has progressive taxes in a sense—countries fund the EU based on their income levels. But the EU also has transfer programs where poorer countries get direct subsidies to foster economic development. We don’t have anything like that in the U.S.

The distinction we draw is somewhat arbitrary, but there’s also a logic that richer people benefit more from funding the government even if they get the same amount of services per capita. When the feds spend money on a naval base in Mississippi, who gets a greater benefit from that? Folks working in the base in Mississippi, or the folks working finance in New York whose incomes are tied to the U.S. having the world’s reserve currency?