Demographics, Capital, and the Fiscal Trap Facing Middle America.
"The cheapest Medicaid reform
is a tax base
that does not leave."
Across much of middle America, the state budget debate runs on a single track: spending has grown too fast, the baseline ballooned, somebody let the lid off. The arguments are not wrong. They are answering the wrong question.
Kansas is a useful place to look at why. Inflation-adjusted, per-capita state spending there has risen from roughly $7,100 per person in 2016 to nearly $8,900 today. Human services drove most of that climb and never reverted after COVID as temporary emergencies became permanent baselines. The easy explanation is ideology: Medicaid expansion, welfare growth, policy radicalism. Kansas did not adopt full ACA Medicaid expansion. This is not a story about a state that lurched left.
It is a story about age. Elderly adults and people with disabilities represent roughly 23 percent of Kansas Medicaid enrollees and nearly 69 percent of spending. The cost per elderly enrollee runs more than $20,000 per year. The cost per child runs roughly $3,600. Same program. Six-to-one cost ratio. That is not a design flaw — it is a demographic fact. And Kansas is not unique. Most of the Midwest faces the same math, at varying speeds.
None of what follows is an argument against caring for older Americans. A decent society honors the people who built it. The question is whether states like Kansas are producing enough younger workers to sustain that obligation over time.
Every state is getting older. The question is which ones are growing their working-age populations fast enough to absorb it — and which ones are watching those people leave. Kansas's median age has risen from 35.2 in 2000 to around 38 today. Residents over 65 have grown from 13.3% to roughly 17% of the population, the fastest-growing cohort. The problem is not simply more spending. It is fewer taxpayers supporting more dependents. And that ratio accelerates: higher burdens on remaining workers make a state less competitive on wages and opportunity, which pushes more people to leave, which worsens the ratio further. This is the demographic trap facing much of interior America. It cannot be legislated away. It is not a state management problem. It is a competitiveness problem — and states compete for working-age people the way firms compete for talent.
There are two things states in this position can actually do — neither a budget line item.
The first is closing the capital gap that is draining too many of their people.
Kansas ranks eighth nationally in birth rate — 59.5 births per 1,000 women of childbearing age. New York sits at 52.7 — nearly 12% less. The problem is not production. It is retention. Enough people leave during their highest-earning years to shift the age distribution of everyone left behind.
I know this precisely. When I graduated law school, I was carrying debt large enough to make economic geography feel less like preference and more like gravity. My plan was to join Bryan Cave in Kansas City and build a career in the state that built me. Then I looked at the numbers. The compensation gap between New York and Kansas City was enormous — large enough, combined with the debt, to make geography feel like pure math rather than comfort or preference. That is not a lifestyle choice but a market signal.
On the flight to New York to start my career I happened to sit next to Sam Brownback. He was a sitting U.S. Senator from Kansas. He wanted to know why I was leaving. I told him the truth: the money. I had no affinity for New York. I was a George Brett fan. And I assumed I would be back in a few years.
But I am writing this from London.
Kansas did not fail me. The market rewarded concentration elsewhere. That dynamic repeats itself across the Midwest every year, in thousands of individual decisions that collectively reshape the demographic and fiscal profile of entire states.
The answer is companies. Sprint, Cessna, Koch Industries, Pizza Hut, Garmin — each built in Kansas, each creating careers, anchoring communities, proving that world-class things could be built far from the coasts. The question is why that pipeline thinned and what restores it.
The sectors exist. The animal health corridor stretching from Manhattan (Kansas) to Kansas City is the densest concentration of veterinary and agricultural biotech expertise in the world. Wichita's aerospace manufacturing base — over 450 precision machine shops, engineers and machinists trained to tolerances most of the country cannot match — is a foundation for advanced industries from defense systems to small modular reactors to power datacenters. The region's BioHub and the federal Tech Hub designation are efforts to turn those existing strengths into industries large enough to retain talent at scale. Kansas already has the industrial base. The missing piece is capital willing to back it.
That capital exists but is not moving. Kansas has substantial private wealth — built across generations in agriculture and land — sitting largely illiquid rather than backing the next generation of companies. Local investors backing local founders is what attracts outside capital later. Venture funds and the companies they back tend to follow conviction, not precede it. Local wealth has to move first. Colorado deploys roughly ten times more per capita in early-stage company investment than Kansas does — not because Colorado has better industries, but because Colorado investors developed a willingness to back their own before someone else did. Every state facing this demographic squeeze can make the same choice. The cheapest Medicaid reform is a tax base that does not leave.
The second is investment in what these states already have. The coasts have spent a decade trying to manufacture community — building mixed-use developments, remote-work incentives, affordable housing schemes — to recreate what the Midwest never lost. Strong family formation. Civic continuity. Affordable living. Room to raise children. These are not consolation prizes. They are the conditions that make a place worth building a company in. Kansas already has them. It needs the companies to match.
The fiscal challenge facing Kansas — and Indiana, and Iowa, and Missouri, and a dozen other states watching their working-age populations thin — is ultimately demographic. Older populations require more services. Younger workers pay for them. The ratio between those two groups is the budget. These states cannot cut their way out of demographic decline. They have to grow their way out.
"These states cannot cut their way out of demographic decline. They have to grow their way out."
Josh Dambacher is a Managing Partner at an international law firm in London, where he advises on investment funds, capital markets, and cross-border transactions. A fifth-generation Kansan, he writes about economics, law, and policy at The Plains Ledger. He is a spokesman for Republicans Overseas and a regular commentator on BBC, CNN International, and GB News.
— J.D.
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