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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- Opinion
- Fiscal Federalism Initiative
Governing Magazine: The Unknown Impact of Federal Fiscal Decisions
The federal deficit is not just a federal problem. Federal decisions about the best ways to cut programs and increase revenue should take into account all costs and benefits, including the effects on state and local governments. more
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- Report
- Fiscal Federalism Initiative
Nine Subsidyscope Charts for Nine Economic Sectors
There are stark differences in how the government directs resources across different sectors of the economy, according to charts released by Pew’s Subsidyscope project.
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- Report
- Fiscal Federalism Initiative
May 2012 Addendum: A Year or More: The High Cost of Long-Term Unemployment
This report looks at long-term unemployment using statistics from the first quarter of 2012.
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- Report
- Fiscal Federalism Initiative
Reducing the Deficit by Increasing Individual Income Tax Rates
This paper examines whether raising just the top two or three individual income tax rates alone could put the debt on a sustainable path and what the rates would be under several different scenarios.
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- Report
- Fiscal Federalism Initiative
Implications of Different Bases for a VAT
This paper describes the policy and administrative reasons for exclusions from the VAT base and the design of a rebate as a substitute for base exclusions to address distributional objectives. The paper then analyzes the effect of possible exclusions from a U.S. VAT base or a rebate on the VAT rate necessary to achieve a specific deficit reduction target and on the distribution of the tax burden. more
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- Report
- Fiscal Federalism Initiative
Five Long-Term Unemployment Questions
This series of charts illustrates different dimensions of the U.S. unemployment challenge, such as who make up the long-term unemployed population, where the long-term unemployed are located, and whether workers are being laid off permanently or temporarily. more
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- Report
- Fiscal Federalism Initiative
Using a VAT to Reform the Income Tax
This paper describes the Graetz proposal in detail and analyzes its effects on federal revenues, spending and the deficit, the distribution of the tax burden, marginal tax rates and other incentives, and the tax system’s administrative and compliance costs. more
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- Report
- Fiscal Federalism Initiative
November 2011 Addendum: A Year or More: The High Cost of Long-Term Unemployment
In the third quarter of 2011, approximately 31.8 percent of the nearly 14 million Americans who were unemployed had been jobless for a year or more.
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- Interactive
- Fiscal Federalism Initiative
The Pew Budget Challenge
Tough choices are required to solve the debt crisis, as the Super Committee knows. Can you make them? Find out by taking the Pew Budget Challenge! Choose from more than 100 spending and tax policy options to reduce the national debt to a sustainable level of 60 percent of the GDP in the next 10 years
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- Report
- Fiscal Federalism Initiative
Using a VAT for Deficit Reduction
This paper examines two options to increase revenues. The first option is to adopt a value-added tax (VAT). The other option would reduce the deficit by the same amount as the VAT, but in a very different way: by increasing all individual income tax rates, including those that apply to capital gains and dividends.
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