Whether Texas is a donor state depends entirely on which federal dollars you count. Under the standard balance-of-payments measure used by the Rockefeller Institute of Government, Texas received roughly $80 billion more in federal spending than its residents and businesses paid in federal taxes in fiscal year 2023, largely because of the enormous concentration of defense spending inside the state.1Rockefeller Institute of Government. Giving or Getting? New York’s Balance of Payments with the Federal Government (2025) Narrower analyses that strip out defense procurement and federal payroll flip the result and show Texas paying in more than it gets back. Both answers use real numbers. They just count different things.
What a Donor State Actually Is
A donor state sends more to Washington in federal taxes than it receives back in federal spending. The Rockefeller Institute publishes the most-cited annual version of this calculation, comparing federal revenue collected from each state to federal expenditures within it.1Rockefeller Institute of Government. Giving or Getting? New York’s Balance of Payments with the Federal Government (2025)
The tax side is straightforward: individual income tax, corporate tax, payroll taxes, and excise taxes paid by people and companies in the state. The spending side is where the argument lives. Grants to state agencies and Medicaid matching funds are uncontroversial. A multibillion-dollar defense contract paid to a company in Fort Worth is a harder call. So is a Social Security check mailed to a Texas retiree who earned the benefit working elsewhere. Include those categories and Texas looks like a big net winner. Exclude them and it looks like a donor.
The Two Answers for Texas
Under the Rockefeller Institute’s 2025 report covering fiscal year 2023, Texas ranked among the five states with the most favorable balance of payments, at roughly $80 billion in the black.1Rockefeller Institute of Government. Giving or Getting? New York’s Balance of Payments with the Federal Government (2025) The Department of Defense alone spent $71.6 billion in Texas that year, making it the top state for defense dollars in the country.2U.S. Department of Defense. DOD Releases Report on Defense Spending by State in Fiscal Year 2023 Military bases, defense contractors, NASA’s Johnson Space Center, and federal payroll drive most of the surplus.
Narrower analyses that focus on grants and direct services rather than defense procurement and federal payroll reach the opposite conclusion. At least one analysis of fiscal year 2024 data estimated Texas sent roughly $68 billion more to Washington than it received. The often-repeated claim that Texas gets back somewhere between $0.85 and $0.96 per dollar tracks this narrower approach, though the exact range is hard to pin to a single authoritative source.
One piece of context matters before you pick a side. The federal government runs a deficit, so in absolute terms most states receive more than they contribute. In the Rockefeller analysis, 47 of 50 states came out as net recipients in 2023; only New Jersey, Massachusetts, and Washington posted negative balances.1Rockefeller Institute of Government. Giving or Getting? New York’s Balance of Payments with the Federal Government (2025) The useful question is not whether Texas “makes money” from Washington but how its ratio compares to other states.
h2>Why Texas Pays So Much Federal Tax
Texas ranked among the top four states in total federal tax collections for fiscal year 2024, behind California and roughly comparable to New York and Florida. A few features of the state’s economy explain that.
Size and Growth
Texas has the second-largest state GDP in the country and a population that keeps growing faster than most other states. More workers and more profitable businesses mean a bigger base for federal income and payroll taxes. Social Security’s 6.2 percent tax and Medicare’s 1.45 percent tax apply to every paycheck in the state regardless of how Texas structures its own tax system.3Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
Energy
Texas leads the country in crude oil production by a wide margin. The companies that extract, refine, and export those resources pay the standard 21 percent federal corporate tax rate on their profits, as do the petrochemical, wind, and technology firms that have expanded across the state.
No State Income Tax
Texas does not levy a personal income tax. The connection to federal revenue is more indirect than people assume. The absence of a state income tax does not raise anyone’s federal taxable income directly; Texans just have no state income tax deduction to claim, and most take the standard deduction anyway. The larger effect is that a state with no income tax attracts high-earning workers and corporate headquarters, which then expands the pool of federal taxpayers.
Where the Federal Money Comes Back
Defense and Aerospace
Military spending dwarfs everything else. Texas received $71.6 billion in Department of Defense expenditures in fiscal year 2023, including procurement, base operations, and salaries for active-duty and civilian personnel.2U.S. Department of Defense. DOD Releases Report on Defense Spending by State in Fiscal Year 2023 Fort Cavazos, Joint Base San Antonio, and other installations employ hundreds of thousands of people, and NASA’s Johnson Space Center adds another layer. Whether a defense contractor’s paycheck counts as “federal spending in Texas” or as a private-sector salary that happens to be government-funded is the core methodological dispute behind the donor-state question.
Medicaid
The federal government covers a percentage of every state’s Medicaid costs through the Federal Medical Assistance Percentage, recalculated annually and set higher for states with lower per-capita income.4U.S. Department of Health and Human Services. Federal Medical Assistance Percentages or Federal Financial Participation in State Assistance Expenditures With one of the nation’s largest Medicaid populations, Texas draws billions in federal matching funds each year.
Highway Funding
Texas received over $4 billion from the federal Highway Trust Fund in fiscal year 2020 and higher amounts in later years under more recent transportation legislation.5Texas Department of Transportation. Federal Rate of Return FY 2021 Update The state has more lane miles of public roadway than any other and carries a large share of the country’s freight traffic.
Disaster Relief
Texas faces hurricanes, flooding, tornadoes, and severe storms often enough that federal disaster spending is a recurring line item. Presidential disaster declarations trigger assistance under the Stafford Act.6Federal Emergency Management Agency. Stafford Act One 2025 declaration for severe storms and flooding in Texas obligated over $95 million in public assistance grants plus $41 million in individual assistance.7Federal Emergency Management Agency. Texas Severe Storms, Straight-line Winds, and Flooding (DR-4879-TX) Major hurricanes push those figures much higher.
Limits of the Donor State Label
The framework has real weaknesses. Treating every federal dollar as equivalent flattens huge differences: a Medicaid payment to a low-income Texan and a defense contract to a major aerospace company both register as “federal spending in Texas,” but they reflect different policy choices. States near Washington, D.C., such as Virginia and Maryland, top the recipient charts not because they are poor but because the federal government sits there. Texas ranks high for a similar reason, since its military infrastructure is a national asset located within one state’s borders.
Individuals pay federal taxes, not states. A wealthy Texan in the 37 percent bracket contributes far more than a middle-income Texan, but both get folded into the same state total. As the National Taxpayers Union has put it, “states and counties with more wealthy taxpayers are not ‘donors’ — the taxpayers themselves are.” Aggregating millions of returns into a single state figure hides more than it shows.
And the federal deficit warps every ratio. Washington spent roughly $1.8 trillion more than it collected in fiscal year 2023, so the total pie of federal expenditures runs larger than total federal revenue. Under those conditions nearly every state gets back more than it puts in, because the extra money is borrowed rather than redistributed from other states.
How 2026 Tax Changes Shift the Picture
Several provisions of the 2017 Tax Cuts and Jobs Act were originally set to expire after 2025. Congressional action in 2025 modified that landscape, including a higher SALT deduction cap.
The SALT deduction lets itemizers deduct state and local taxes from federal taxable income. For 2026 the cap has been raised to $40,000 for most filers, up from the prior $10,000 limit. Because Texas has no state income tax, its residents can only claim property and sales taxes under this deduction. Texans with high property tax bills may benefit, but most will continue to take the standard deduction. Residents of high-tax states like New York and California gain far more from the expanded cap, which could reduce their federal bills and shift more of the national tax load toward low-tax states.
The federal corporate tax rate remains at 21 percent for 2026, unchanged since 2018. Texas’s large corporate sector, especially in energy and technology, will keep generating substantial federal revenue at that rate. If federal collections from Texas rise while Texans gain less from SALT expansion than residents of high-tax states, the state’s net contribution to the treasury could grow on a relative basis.
What This Means for Texans
For an individual taxpayer, the donor-state debate is mostly an abstraction. Your federal tax bill turns on your income, filing status, and deductions, not on which state you live in. A software engineer in Austin and one in Seattle earning identical salaries pay the same federal income tax.
Where the label matters is in policy fights over federal spending formulas. When Texas officials argue the state is shortchanged by Washington, they usually cite analyses that exclude defense spending and focus on grants for healthcare, education, and infrastructure. When those same officials point to the state’s military installations as economic engines, they are describing the spending that makes Texas look like a net recipient. Both descriptions can be accurate at once. The answer just depends on which federal dollars you count.