In today’s Wall Street Journal, Sen. Jim DeMint (R‑SC) and Rep. Kevin Brady (R‑TX) advise the states to get their fiscal houses in order instead of holding out hope for a bailout from federal taxpayers. That’s sound advice. However, the states already effectively get bailed out by federal taxpayers each and every year.
The first chart shows that the federal government has accounted for over a third of total state spending in recent years. The increase can be attributed to federal “stimulus” spending. The federal government’s share will retreat as the economy (hopefully) continues to strengthen and federal policymakers limit spending increases in the face of mounting debt. However, getting the federal government’s share of total state spending back to, say, 30 percent would be nothing to celebrate.
The post‐stimulus decrease in Washington’s generosity to the states has state and local officials — and the special interests that ultimately benefit from the Beltway‐to‐State money laundering operation — concerned. Reporters typically relay these concerns to the public without adding any historical context. The following chart provides that context, and it indicates that the concern shouldn’t be that the states won’t be getting as much money; rather, the concern should be that the states have become dangerously reliant on federal money.
So here’s another suggestion for state and local officials. If you want to spend more money than Washington will give you, go out and tell your taxpayers that you want to increase their taxes to pay for it.
[See this Cato essay for more on why the federal government should cut aid to the states.]
Chris Edwards recently penned a piece that makes the case for cutting federal subsidies to state and local governments. In a related budget bulletin, he shows that there are now over 1,100 federal aid programs for state and local governments.
I’ve produced two charts that illustrate the extraordinary growth in federal subsidies to state and local government using the latest figures in the president’s 2012 budget proposal.
The first chart shows the inflation‐adjusted increase in federal subsidies to states and local governments since 1941, separated into “health” and “non‐health” categories:
The second chart shows the inflation‐adjusted increase in total federal subsidies to state and local governments since 2000:
Like countless other individuals and interest groups, state and local government officials have become addicted to federal taxpayer money. This addiction has encouraged irresponsibility and profligacy at all levels of government. It has also prevented citizens from appreciating the true cost of the services they demand from state and local governments.
In the next couple of months, state and local officials will wail and gnash their teeth over proposals from Washington to cut back on the federal feeding tube. Journalists who are tempted to be overly‐sympathetic to state and local officials should look at these charts and ask themselves why these folks never seem to be able to get their fiscal houses in order despite all the “free” money they’re getting from federal taxpayers.
See this Cato essay on the need to revive fiscal federalism.