High-Tax States Waste Taxpayer Money on Bloated Welfare Programs, but Every State Has Room to Improve
Key Findings
- If high-income-tax states ran their Medicaid programs more like low-income-tax states, they could expect to save nearly $150 billion annually.
- In high-income-tax states, more than half of Medicaid enrollees are able-bodied adults.
- High-income-tax states enroll nearly twice the number of able-bodied adults without dependents in food stamps than their low-income-tax peers.
- Despite lower enrollment figures, low-income-tax states recover more Medicaid fraud dollars than their high-income-tax peers.
- There are simple solutions that states should adopt to help ensure welfare dollars are better spent.
Overview
There are some obvious differences between high-income-tax and low-income-tax states. Citizens in low-income-tax (“low-tax”) states keep more of their money, leaving them with more disposable income and a greater ability to save for a better future. Citizens in high-income-tax (“high-tax”) states keep less of what they earn, meaning they must work longer hours to earn the same after-tax income.
There are other less obvious differences as well. For instance, low-tax states perform as well or better than high-tax states on key metrics like education, crime, and transportation despite spending less taxpayer money.1 But how do these groups of states compare in managing their biggest welfare programs—Medicaid and food stamps?
The 11 jurisdictions with the highest maximum marginal tax rates—California, Hawaii, Maine, Massachusetts, Minnesota, New Jersey, New York, Oregon, Vermont, Wisconsin, and Washington, D.C.—comprise the high-tax states in this study, with top rates ranging from 7.15 percent to 13.3 percent.2 The 11 low-tax states include nine states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—that do not tax regular income and Arizona and North Dakota, which have a top rate of 2.5 percent.3

These two groups reveal huge differences in how they manage their Medicaid and food stamp programs in terms of recipients, spending, and fraud prevention and detection. States have a responsibility to spend taxpayer money on these welfare programs as effectively as possible. There are several commonsense solutions that all states should pass to help accomplish this.
High-tax states run bloated and inefficient Medicaid programs
The Medicaid program is the second-largest item in states’ budgets.4 How wasteful the program is run affects both state and federal taxpayers. Money spent on able-bodied adults means higher taxes and fewer resources available for the truly needy, like individuals with disabilities, low-income children, and pregnant women—the people the program was designed to serve.5
In 2021, 30.4 million people in high-tax states were enrolled in Medicaid—nearly 32 percent of these states’ total population.6-7 That year, low-tax states enrolled just 18.6 million people in the program or 23 percent of the total population.8-9

If high-tax states enrolled their population at the same rate as low-tax states, they could lower their combined enrollment to 21.9 million.10 This would leave 8.5 million fewer people dependent on taxpayers. Instead, the discrepancy between high-tax and low-tax states has only continued to grow, with the latest data showing the high-tax Medicaid population swelling to 31.2 million and the low-tax Medicaid population dropping to 15.7 million.11
More recipients means greater Medicaid costs in high-tax states. In 2023, state and federal taxpayers paid $333 billion to run the Medicaid programs in high-tax states—an average of $3,500 per person in those states.12 That year, Medicaid in low-tax states cost taxpayers half of this or $163 billion—less than $2,000 per person in those states.13 Part of the reason for the cost difference is the efficiency in running the program, with high-tax states spending two and a half times more on program administration than low-tax states.14
High-tax states could save taxpayers $146 billion a year if they spent in proportion to their population on Medicaid as low-tax states do.15
The gap in recipients and spending between these groups of states is not because high-tax states have a greater percentage of truly needy individuals. Instead, it is the result of how they treat able-bodied adults.
Nearly 16 million high-tax state Medicaid enrollees are able-bodied adults—more than half of their total enrollment.16 These are not the people the program was designed to help. In low-tax states, 5.4 million enrollees are able-bodied adults—less than one-third of total enrollment.17
Another way to think about it is that one out of every six people in high-tax states are able-bodied adults enrolled in Medicaid, whereas in low-tax states, able-bodied adults on Medicaid are one out of every 15 people. In fact, if the able-bodied adult population is taken out of the equation, low-tax states would actually have a higher percentage of their citizens on Medicaid than high-tax states.18
High-tax states enroll a greater number of people and spend more money on Medicaid but do so by enrolling able-bodied adults, whereas low-tax states enroll a higher percentage of the truly needy.

Administrative costs and benefits for able-bodied adults lead to wasteful food stamp spending in high-tax states
Much like Medicaid, food stamps show a large difference in recipients and spending between high-tax and low-tax states.

In June 2023, 12.5 million people were on food stamps in high-tax states—more than 13 percent of their total population.19 Low-tax states had nearly three million fewer people enrolled in food stamps, with 9.6 million people enrolled in the program.20
If people in high-tax states enrolled in the program at the same rate as low-tax states, 1.6 million fewer people would collect food stamps. This figure is nearly one-sixth of the total food stamp participants in high-tax states.
Likewise, high-tax states cost taxpayers $2.3 billion in a single month in 2023, whereas low-tax states placed a $1.6 billion burden on taxpayers.21 If high-tax states spent more like their low-tax counterparts, it would save taxpayers more than $400 million every month.
Again, just like Medicaid, this extra spending is not going to benefit the truly needy but rather able-bodied adults. Work registrants are able-bodied adults under the age of 60 without young children or the ability to meet some other exemption.22 There are 3.1 million work registrants collecting food stamps in high-tax states versus 2.3 million in low-tax states.23

Able-bodied adults without dependents (ABAWDs) are a subgroup of work registrants. These individuals are able-bodied and under 55 years of age with no dependents.24 There are 1.5 million ABAWDs collecting food stamps in high-tax states compared to roughly 750,000 in low-tax states—nearly double.25 If high-tax and low-tax states enrolled an equal number of ABAWDs, prime working-age adults without a reason they cannot work, one-quarter of the difference in total food stamp enrollment between the two sets of states would disappear.
Another large contributor to the difference in spending between the two sets of states is administrative costs. Taxpayers paid a whopping $4.4 billion for administrative costs in high-tax states in 2021—$47 per person in those states.26 In low-tax states, administrative costs were $1.3 billion, with a more manageable cost of $16 per person in these states.27 This near-tripling of the administrative cost burden adds more than $750 million to taxpayers’ bill each year.

Low-tax states outperform high-tax states in error rates and fraud recoveries
Besides wasteful spending on able-bodied adults and excessive administrative costs, high-tax states also do a worse job of recouping fraudulent payments and preventing overpayments in the first place.
In 2021, Medicaid Fraud Control Units in low-tax states outperformed high-tax states. Despite the enrollment of nearly 12 million fewer people, low-tax states opened a similar number of investigations and achieved a similar number of convictions.28 However, the real difference is that low-tax states recovered two and a half times more money than high-tax states despite the lower enrollment.29 To put this in perspective, if high-tax states made recoveries per beneficiary at the same rate as low-tax states, they would have recovered $996 million instead of their actual $235 million.30
The following year showed more of the same, with low-tax states earning more convictions and again doubling their peers in the amount recovered per beneficiary.31

Not only do high-tax states lag behind low-tax states in recovering fraud dollars, but they also do a worse job of preventing fraud in the first place. Seven of the 11 high-tax jurisdictions had food stamp overpayment rates above 10 percent, whereas only three of the low-tax states did.32 On the flip side, six of the low-tax states had overpayment rates below eight percent and only three high-tax states did.33 After removing outlier states Alaska and New Jersey, high-tax states’ overpayment rates were nearly 50 percent higher than their low-tax peers.34

For states interested in improving their welfare programs to better ensure resources go to the truly needy and taxpayer money is not wasted on able-bodied-but-unwilling, working-age adults or outright fraud, there is a wide selection of reforms.

States have options to help ensure welfare benefits go to the truly needy
Despite low-tax states outperforming high-tax states in managing their welfare programs, every state has some room for improvement. To help ensure more efficiency and that taxpayer money goes to those that truly need it, states should take these steps.
- Stop or repeal Medicaid expansion – 9.9 million able-bodied adults were enrolled in Medicaid through expansion in high-tax states and another two million in low-tax states.35 Since five low-tax states have wisely chosen not to expand versus just one high-tax state, expansion is a key reason that Medicaid enrollment and spending is so much higher in high-tax states. Across the country, expansion enrollment and costs have shattered projections, with total spending surpassing $1 trillion nationwide.36
- Ban waivers from existing welfare work requirements – Both work registrants and ABAWDs must meet work requirements to receive food stamps.37 However, many states diminish the effectiveness of work requirements by abusing geographic waivers and no-good-cause exemptions.38-40
- Expand work requirements to include more able-bodied adults – In addition to closing loopholes, states should strengthen existing work requirements and apply them to more people. Work requirements have a proven track record of moving able-bodied adults from welfare to work and breaking the cycle of dependency.41 Unfortunately, three-quarters of ABAWDs on food stamps do not work at all and only three percent are working full time.42
- End broad-based categorical eligibility (BBCE) – BBCE is a loophole used to get around income and asset tests in food stamps by allowing people to become eligible based on eligibility in another welfare program.43 States are abusing this to the tune of 5.4 million food stamp recipients that do not meet eligibility requirements, costing taxpayers nearly $112 billion.44

- Require pre-enrollment verification of income and household information – The Biden administration has encouraged states to boost Medicaid enrollment by allowing income verification to happen after enrollment.45 Despite requirements that income be verified with documentation, seven states have accepted the offer and now verify income after the applicant is already enrolled.46
- Cross-check for income related to eligibility – States already collect data that show income like wage and employment records, new hire data, pension data, child support documents, and unemployment compensation.47-49 States should conduct regular and automatic eligibility cross-checks of these data sources to ensure the eligibility of enrollees.
- Cross-check for out-of-state electronic benefit transfer (EBT) transactions – Millions of Americans change their state of residence every year, many of whom are food stamp enrollees who may fail to report their out-of-state move.50 Examples abound of enrollees using benefits for years after moving out of a state and even receiving benefits from multiple states at the same time.51-52
- Cross-check for death records – When someone dies, they should no longer collect welfare benefits. This is common sense, but unfortunately is not always the case. A sampling of Illinois’s Medicaid program showed that more than 85 percent of the sampled were dead.53 In Pennsylvania, the auditor general found that 2,000 deceased enrollees received nearly $700,000 in benefits in a single year.54 Elsewhere in the Midwest, an Ohio audit found more than 1,800 instances of dead people receiving food stamps.55
- Cross-check for lottery winnings – Tens of thousands of substantial lottery winners, those winning at least $4,250, which makes them ineligible for taxpayer help, remain on food stamps.56 In fact, public records requests to 13 states show they removed only about 400 lottery winners out of a total of more than 66,000 substantial lottery winners.57
- Verify exemptions from work requirements – Debt ceiling negotiations in 2023 opened the door for a large exemption to food stamp work requirements, enrollees experiencing homelessness.58 In addition, the definition of “homeless individual” is broad and enrollees are allowed to self-attest to their living situation.59
The Bottom Line: High-income-tax states trap citizens in dependency while wasting taxpayer money. All states should implement reforms to ensure welfare programs are limited to the truly needy.
High-tax states are poorer stewards of taxpayer money than low-tax states in terms of major welfare programs like Medicaid and food stamps. They spend more because their enrollment figures are inflated by including more able-bodied adults, not the truly needy. And their administrative costs are sky-high. The costs are also inflated because high-tax states do a poor job of preventing fraud and recovering fraud dollars once they are paid.
But it is not just high-tax states that can improve the way they run these programs. All states have a duty to spend taxpayer money as effectively as possible and ensure their money spent on welfare programs goes to the truly needy. There are ready reforms for states to adopt to help ensure this happens.

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