Force-Feeding Fiscal Federalism

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State and local politicians love federal money. Every federal dollar that a state or local politician can spend is a dollar that he or she doesn’t have to ask his or her voters to come up with through taxes or fees.

One problem is that citizens might (erroneously) view local spending that is subsidized by the federal government as being a “free lunch.” Citizens are numbed to the real cost of government and the incentive for them to keep tabs on how state and local officials spend money is weakened.

According to an article in Politico, federal sequestration cuts to state and local subsidies could mean that local taxpayers will be asked by local officials to cover the difference: 

To keep their budgets in order, local officials across the country — many of whom don’t have the luxury of running deficits — say a dysfunctional Congress is forcing them to resort to the type of tax increases that Republicans, in particular, so fiercely oppose. 

Some of the hard-hit jurisdictions are obvious. Residents in Fairfax County, Va., which is home to defense contractors and thousands of federal employees, are being warned that property taxes could rise by an average of $262 later this year because of fallout from the sequester.

Heaven forbid that defense contractors and federal employees – already beneficiaries of captive federal taxpayers – might have to bear a greater responsibility for the local government services that they “benefit” from. Perhaps a potential tax increase will cause Fairfax County residents to take a closer look at how local officials have been spending money and decide that additional money isn’t needed. (And perhaps the defense contractors and federal employees in particular will have a better understanding of why some of us don’t want to pay additional federal taxes to help maintain current levels of federal spending.)

Sequestration might not be the ideal way to cut federal spending, but if it results in people appreciating that federal spending isn’t a free lunch, good.

See this Cato essay for more on fiscal federalism.