“Free” Federal Grants Result in Higher State Taxes
Over the last several decades, and increasingly in recent years, state and local government leaders have lobbied for, and received, additional funding from the federal government. Though this money is taken from a different pocket of the same taxpayers, local leaders often tout this as “Free Money”.
A recent study from the Mercatus Center finds that these federal grants actually result in higher state and local taxes, i.e., new spending leads to new programs. As Ronald Reagan put it, “The nearest thing to eternal life we will ever see on this earth is a government program.”
The analysis finds that to be all too true — after federal funding to start a program withers up, the spending continues:
In addition to examining the impact of federal grants on future state budgets, we also examine how federal and state grants affect future local government budgets. Our findings confirm that grants indeed result in future state and local tax increases of roughly 40 cents for every dollar in grant money received in prior years.