Recently, the Tax Foundation released a study showing which states rely most on federal aid and what percentage of their budgets come from these federal dollars.
States receive a significant amount of assistance from the federal government in the form of federal grants-in-aid. In fact, when averaged together state governments relied on federal money for almost one-third of their general revenue in 2014.
This dependence diminishes local priorities in favor of national special interests, incentivizes unnecessary spending at the state and local levels, mandates burdensome regulations, and leaves states vulnerable to future federal spending crises. Simply put, these dollars aren’t free – and the economic, social and financial costs are passed along to taxpayers.
Sutherland Institute wrote an article a year ago about the negative consequences of federal aid in an op-ed in the Daily Herald titled The Myth of Free Federal Money:
“No such thing as a free lunch.”
“If it sounds too good to be true, it probably is.”
“You don’t get something for nothing.”
We know all this. Yet the allure of “buy one, get one free!” “no money down!” and “get 6 months free!” still draws us in.
We see this natural impulse at work when “free” federal money is offered to our elected officials. With billions of tax dollars dangling in front of state and local governments, the sales pitch of better schools, stimulated economies and improved roads usually proves too enticing to turn away.
Unfortunately, this promise is based on a misconception. Federal funding isn’t free at all. In fact, according to new research, it costs Utah taxpayers hundreds of millions of dollars per year.
A new study from Economics International (EI) reports that each additional dollar of federal grant money to the states is associated with an average increase of 82 cents in new state and local taxes.
In Utah, the extra tax burden from every dollar of federal funding is 72 cents. To illustrate, a hypothetical 10 percent increase in federal grants to Utah ($560 million) would be associated with approximately $400 million more in spending from state and local government — an additional tax burden of about $140 per Utahn.
That’s slightly below the national average, but it is cause for genuine concern. It means Utah’s elected officials are being manipulated by the federal government into increasing the financial burden on Utah taxpayers in ways they wouldn’t do otherwise.
We encourage the public and policymakers to reread this op-ed and reject federal funding’s empty promises.