Federal Spending Hinders New Mexico Economy

The humorist Will Rogers once said, “Be thankful we’re not getting all the government we’re paying for.” When it comes to federal spending in New Mexico, we’re not only getting all the government we’re paying for, we’re getting more.

This trend was revealed in a recent report by the Washington-based Tax Foundation. The study analyzed the distribution of federal spending on a state-by-state basis and found New Mexico to be the nation’s single greatest recipient of federal spending relative to how much the state’s taxpayers send to Washington in federal taxes. According to the study, New Mexico receives $2 in federal funds for each $1 we pay in federal taxes.

Some would say that New Mexico’s status as a net recipient of federal spending is a good thing. Our elected members of Congress might even say it is a sign that their efforts to bring earmarks and federally funded projects home (the Air Force’s recent decision to station the FA-22 fighter jets at Holloman Air Force Base being one recent example) are paying off for their constituents.

There are, of course, many reasons for New Mexico’s disproportionate level of federal largesse. The state has a number of military installations, scientific and research facilities, and as a western state, it is home to several National Forests and Parks. Thus, thousands of New Mexicans are employed in various federal jobs within the state. While these high-paying jobs might seem like an obvious economic boon to our economy, an analysis by the Rio Grande Foundation found that high levels of federal spending in a given state actually correlates with weaker economic growth.

Specifically, while our neighbors in Colorado and Texas receive less from the federal government than is taken from their taxpayers ($0.79 and $0.94 per $1 in tax respectively), Colorado’s gross state product (GSP) per person (the total market value of all the goods and services produced within its borders during a specified period) is 11th in the nation and Texas ranks 20th, New Mexico’s gross state product, on the other hand, is 44th in the nation per person. Since productive economic activity closely mirrors the creation of wealth and higher standards of living, Coloradans and Texans enjoy higher standards of living than New Mexicans even though the federal government takes from them and gives to us!

The trend of federal money flowing to poor states and out of wealthier states is not limited to the west. Vermont and New Hampshire are similar in geography and resources, yet New Hampshire receives $.67 for every dollar it sends to Washington while Vermont gets back $1.12. Despite this, New Hampshire has the 17th-highest GSP per person while Vermont lags behind in 35th place.

While federal transfer payments in the form of welfare and Social Security do skew the data somewhat, stark differences also illustrate two development patterns, one that relies on outsiders for support and another that derives wealth and economic strength from within. In a government-driven environment, benefits are limited to recipients of government largesse while innovation and entrepreneurship are not cultivated. In a low tax, low regulation environment, on the other hand, creativity is nurtured and the benefits of this creativity are spread throughout the economy.

Colorado, Texas and New Hampshire are wealthier than New Mexico due to their economic policies. Coloradans strictly limit state spending and taxes under their constitution, while Texas and New Hampshire lack prosperity-sapping income taxes (New Hampshire goes Texas one better and also refrains from taxing sales).

New Mexicans have little or no control over the location of military bases, Indian reservations and other national lands, but we must disavow ourselves of the notion that federal spending contributes to prosperity. We can get off the dole and improve our economy by passing our own constitutional taxpayer protections and eliminating taxes on income. The sooner New Mexicans realize that there is no such thing as a free lunch, the better off we’ll be.