The federal-state relationship is in the spotlight because of enormous fiscal challenges facing all levels of government. Tight budgets and slow economic growth are leading to discussions about appropriate levels of public spending and how costs should be allocated among different levels of government. Federal and state policy makers require solid data and analysis to engage in a meaningful debate and truly understand how their tax and spending policies affect other levels of government.
Why the Federal-State Relationship Matters
State and federal budgets and their economies are inseparably linked. Federal government grants make up an average of $1 out of every $3 in state revenues. Several of the largest state programs, such as Medicaid and education, are supported by these funds. Almost three-fourths of states tie their income tax calculations to the federal income tax. And many state economies are heavily reliant on federal activities within their borders. As a result, almost any federal policy change, from changing tax rules to military spending, will have an effect on the states.
Why Federal Deficit Reduction Matters to the States
Over the coming years, the federal government is expected to consider changes to tax and spending policies to address the federal deficit. These measures will undoubtedly impact the flow of federal funds to states and their revenues, and have a significant effect on state budgets. At the same time, states are facing a long recovery from the Great Recession and have less capacity than in the past to respond to changes in federal tax and spending policies. The resulting fiscal and economic impact on the states will affect the nation’s overall economic well-being.
How We Conduct Our Work
- Research. We conduct original, non-partisan research and partner with other organizations to examine the connections between federal and state governments, with a focus on budget, tax, and regulatory policies. A particular emphasis will be on how federal deficit reduction proposals and actions will impact states.
- Convene. We bring together federal and state decision makers to promote consideration of the fiscal and economic health of states when federal policy makers propose and evaluate various deficit reduction options.
- Inform. We give federal and state policy makers the data they need to enhance understanding of this multi-faceted relationship and make informed decisions in key policy areas where federal and state governments intersect.
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The LATEST from the Project
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February 28, 2013
Sequester Will Impact States
Pew's Anne Stauffer, an expert in the federal-state fiscal relationship, discusses the challenges policymakers face and how the sequester impacts states differently. more
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- Media Coverage
- Fiscal Federalism Initiative
New York Times: Fear of U.S. Cuts Grows in States Where Aid Flows
States are increasingly alarmed that they could become collateral damage in Washington’s latest fiscal battle, fearing that the impasse could saddle them with across-the-board spending cuts that threaten to slow their fragile recoveries or thrust them back into recession. more
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- Infographic
- Fiscal Federalism Initiative
Federal Grants to States Subject to Sequester Vary Widely Across Program Areas
How budget cuts under the sequester could impact states. more
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- Project Update
- Fiscal Federalism Initiative
Update: Fiscal Cliff Deal Poses Uncertainty For States
An update on how the sequester and possible future federal spending cuts could impact state budgets.
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- Interactive
- Fiscal Federalism Initiative
The Impact of the Fiscal Cliff on the States: Sequestration
The scheduled across-the-board cuts to federal defense and nondefense spending would have both direct and indirect impacts on states' budgets. This interactive tool highlights various indicators of states' vulnerabilities to the sequester. more
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- Report
- Fiscal Federalism Initiative
The Fiscal Cliff and Unemployment Insurance Benefits
Among the expiring tax provisions and scheduled spending cuts included in the fiscal cliff is the end of certain federally funded unemployment insurance (UI) benefits at the end of 2012. While the expiration of these benefits would have little direct effect on state budgets, it could affect economic activity in the states. Those impacts would vary depending on current unemployment rates and overall economic conditions within each state.
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- Report
- Fiscal Federalism Initiative
Tax Expenditure Database
Pew's Tax Expenditure Database helps policy makers, journalists, researchers and the public better understand the role that tax expenditures play in the nation’s budget and economy.
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- Data Visualizations
- Fiscal Federalism Initiative
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- Report
- Fiscal Federalism Initiative
The Impact of the Fiscal Cliff on the States
The state impact of the fiscal cliff’s expiring federal tax provisions and scheduled spending cuts is missing from the national discussion. This study finds that the effects on the states vary greatly based on the extent to which states are tied to the federal tax code and federal spending.
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- Press Release
- Fiscal Federalism Initiative
Pew: “Fiscal Cliff” to Impact States’ Budgets
The “fiscal cliff,” a series of expiring federal tax provisions and scheduled spending cuts set to take effect in January 2013, will directly affect state budgets according to a new report. more
