In 2005, the federal government spent around $2.5 trillion. Each year the Census Bureau publishes the information in the Consolidated Federal Funds Report (CFFR) showing where that money went. The report for fiscal year 2005 was released in October 2007, and includes approximately 92 percent of all federal money expended during the year according to state and in some cases, sub-state areas. Excluded from the report are items such as interest paid on the debt, international payments, salaries and wages of military personnel stationed overseas and classified projects.

Military outlays in 2005 totaled $495.3 billion, around four-fifths of which appears in the CFFR. The amount that can be traced to states and territories amounted to $390.9 billion, as presented in Table 1 [2] below. Table 1 compares the money that came back to states in military procurement contracts, salaries and wages, and grants, with how much was paid in taxes by the taxpayers of those states for military spending. After taking into account that part of military spending is financed by borrowing, approximately 91 cents came back for every dollar paid in taxes. This number would be lower had the numbers not been adjusted for deficit-financing. These amounts include the Department of Defense and the defense-related activities in the Department of Energy (essentially, nuclear weapons). Taxpayers of 32 states paid more for the military than was returned in terms of salary and wages, procurement contracts and other expenditures. States which had the worst return for their tax dollar were Minnesota ($0.19), Delaware ($0.23), and New York ($0.24). A total of 19 states paid less in taxes for the military than they received back. States which had the best return for their tax dollar were New Mexico ($5.00), Alaska ($4.81), and Hawaii ($3.95).

Table 2 [3] indicates how much each state received in Department of Defense (DoD) procurement contracts. California ($31.2 billion), Virginia ($26.8 billion) and Texas ($20.6 billion) received the largest amount in procurement contracts. Per capita spending on DoD procurement contracts nationally was $828. The top three states per capita were the District of Columbia ($6,137), Virginia ($3,545), and Alaska ($2,894). States with the lowest per capita spending were Idaho ($109), Oregon ($162), and Delaware ($212). Data only indicate the location of the initial contract and do not follow dollars to sub-contracts.

In addition to the significant portion of military spending leaving the U.S., the economic impact of military spending that goes to local areas is not as effective at creating jobs as other types of spending. A new report [4]by the Political Economy Research Institute shows that public spending on education creates more jobs that are higher paying than the same amount of money spent on the military. Public spending on other areas such as health care and energy efficiency also create more jobs than the equivalent amount spent on the military, though the jobs have lower pay and benefits. Nevertheless, the overall economic impact in terms of wages and benefits is much higher. Moreoever, investing in renewable energy and conservation, health care and education can have considerable impact on technological developments, workforce skills and infrastructure, all of which will support further economic growth and development.

As Table 3 [5] shows, however, the money directed toward state and local areas for education spending is much less than military spending. The table also show how much each state receives in Environmental Protection Agency and Food and Nutrition Services spending. In contrast to the $390.9 billion distributed for the military, $56.8 billion came to states in Department of Education programs; $50.6 billion in Food and Nutrition programs; and $6.8 billion in EPA programs.

Table 4 [6] shows total expenditures by state compared to taxes paid. Thirty-one states received more than its taxpayers paid in taxes and 20 states paid more in taxes than came back in federal spending. Nationally, $1.01 came back for every tax dollar paid. Borrowing money to finance spending is the reason why more came back than collected in taxes.

Notes and sources [7].

In the Consolidated Federal Funds Report, grants and procurement data generally represent obligations (as opposed to actual expenditures/outlays, while salaries and wages represent actual expenditures (outlays). Because some data are presented as obligations, there should be some caution exercised when comparing and/or summing the data. An obligation is a definite commitment that creates a legal liability of the government for the payment of goods and services ordered or received. An outlay is the issuance of a check, disbursement of cash or electronic transfer of funds to liquidate a federal obligation.

Military expenditures include the DoD expenditures as presented in the CFFR and the Department of Energy appropriations for weapons activities and other defense activities by state for fiscal year 2005 as presented in the Department of Energy's Budget Request to Congress for FY2007, State Table.

Outlays for the military are for function area 050, national defense, as presented in Office of Management and Budget, Budget of the U.S. Government, FY2008, Historical Tables.

IRS Total Collections are from the Internal Revenue Service data, Table 6, Internal Revenue Gross Collections, by Type of Tax and State, Fiscal Year 2005. However, the state breakdowns do not necessarily reflect where the tax burden is located. For example, a number of companies established addresses in Delaware because of its state tax laws, even though they have few if any assets in the state. Toy 'R Us is a famous example of this phenomenon. Thus, the reporting of federal taxes is in one location while the tax burden is in another.

Taxes for Military are based on IRS total collections and national defense outlays from the Office of Management and Budget. However, we adjusted the outlays by accounting for the percentage of total outlays that resulted in deficit, and subtracted this proportion from total military outlays leaving $431 billion instead of $455 billion. Each state's taxpayer share was calculated by the percentage the state contributed to IRS total collections.

Amount returned to state per dollar paid in taxes is the total amount of the state's military expenditures divided by the taxes paid for the military.

Per capita amounts were calculated by using the same population numbers as reported in the CFFR and are the resident population as of July 1, 2005.

Department of Defense procurement contracts and total expenditures are as published by the CFFR.

Food and Nutrition Services includes programs related to Food and Nutrition listed in the CFFR. However, salary and wages data for just Food and Nutrition could not be separated from the Department of Agriculture total salary and wages which was $5.8 billion. Department of Education and EPA expenditures include salary and wages.