Shane BarnhillSunday,18 November 2012

The Snap:

In the wake of President Barack Obama’s re-election, extremist residents from all 50 states took to the White House’s “We The People” website and filed petitions to secede from the United States. Several of the state petitions, including those from Georgia and Texas, amassed the minimum requirement of 25,000 signatures needed to elicit a formal response from the federal government. Other resident petitions, including Arizona’s, are slowly progressing toward the signature threshold.

The Download:

While there is a 0% chance that any of these petitions will result in actual secession from the United States, let’s humor these numbskulls for a moment, and consider the tax ramifications of their requests. This is especially fun because both tax rates, and disagreements over which programs should receive tax-based government funding, are at the heart of this wave of dissatisfaction.

Let’s use Arizona as an example. According to publicly-available data on federal funding and tax collections, Arizona contributes far less to the federal government, in the form of personal and business tax contributions, than it receives in annual federal spending (infrastructure, etc.). The net result of eliminating federal funds from Arizona’s budget, which would happen in the case of a secession from the United States, would be a 44.75% tax increase (about $5,370 annually) on Arizona residents*. And although this assumes that the state’s budget would be held constant, it would surely be difficult to get politicians in the newly-independent nation of Arizona to reach a bipartisan agreement on the $32.4 billion worth of budget cuts that would be necessary to offset federal funding.

And it gets worse. At this time of this writing, the U.S. national debt is approximately $16.1 trillion dollars (that’s right, trillion, with a “T”), which amounts to $141,796 per taxpayer. In Arizona, there are approximately 2.7 million taxpayers, meaning that Arizona’s share of the national debt is roughly $382 billion. Surely, Arizonans don’t think the United States would just write off the state’s debt liability as part of a secession agreement. But let’s consider a scenario in which the feds decided to be kind, and agreed to let the nation of Arizona mortgage its liability, interest free, over a period of 20 years. This would amount to a yearly tax increase of about $7,100 per taxpayer, driving the overall annual tax increase on Arizona residents to a whopping 103.83%, when added to the amount above.

I should mention, by the way, that the federal government’s allocation to Arizona for defense spending was intentionally excluded from the analysis above, in order to be conservative. Yes, the tax implications of a proposed secession are that bad, even before Arizona’s share of the costs to support the United States military are factored in. Thus, Arizonans would have to incur additional costs — yes, taxes — to start up and fund a new military in the event of secession. For those scoring at home, these additional costs would drive the annual tax increase for Arizonans to over 150%, assuming current levels of spending.

The analysis above will vary for each state in the U.S. But let me save you some time and spoil the ending for you: The business case for secession doesn’t work out. In fact, using the data sets for federal funding and tax collections that I analyzed, only two states — Minnesota and New Jersey — would appear to do slightly better than breaking even in the event of secession, from a tax perspective (and this assumes that taxes are the only issue to consider as part of the decision-making process). But no matter. Neither of these states are even close to 25,000 signatures on their respective petitions for secession. And, it should be noted, both of these states went for Obama in the 2012 election.

In conclusion, perhaps our nation’s pro-secession buffoons should spend less time petitioning for independence, and more time cracking open their math textbooks. Then they could clearly see the illogical results of their emotionally-driven actions. But more importantly, they could make informed, intelligence arguments about fiscal restraint, tax policy, and deficit-reduction, all of which are important issues that our indivisible nation needs to tackle.

Hat Tips:

U.S. Debt Clock, U.S. Government Spending, U.S. Government Revenue, Image Credit: Wikimedia Commons

*Admittedly, I’m oversimplifying the allocation of personal and business taxes, but my point and conclusion still hold.

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  1. […] while back Shane wrote a post about why it was crazy for Arizona to want to break away from the US. He made some good points on why it was a bad idea for Arizona. The basic point was that the state […]

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