A Scary First

It’s hard to believe we missed this article, but for the first time ever Uncle Sam is the primary revenue source for state governments.

Not sales tax, property tax or income tax – federal grants are now the main unsustainable growth hormone.

In fact, the percentage of federal funding of state budgets is up 15% from last year, while sales (-2%), property (-2%), income (-11%) are all down.

Of course “other taxes” are up by 2% at the state level, according to data from the US Commerce Department.

Obviously, one way or another it’s all coming out of your pocket, but the implications of this shift are significant because Washington’s “manna from heaven” can quickly turn into a “mandate from hell.”

From a stat-heavy story published earlier this week in USA Today:

The federal government plans to provide about $300 billion in extra aid to state and local governments over the next two years, mostly for health care, education and transportation projects. State and local governments spend about $2 trillion a year, and the federal government is now paying about 23% of those costs.

States are counting on tax collections rebounding by 2012, when stimulus money starts to run out.

And that’s just it … what if tax collections don’t rebound?

Obviously at that point state governments will raise taxes to cover the supposed  “gaps,” which is a recipe for further economic hardship.

Oh, and the federal mandates – once here – aren’t going anywhere.

Look, people … the free market is an amazing, enduring thing (in spite of government’s ongoing attempt to kill it), but the administration of Barack Obama has taken the fiscal irresponsibility and failed interventionist approach of “Bush Republicans” to a whole new level.

The economy is going to rise and fall on its own – all government can do is extend or shorten the duration of those cycles by either a) taking money out of the economy or b) putting it into the economy.

Right now, government has obligated $13 trillion to “lift us up” out of the current recession.

That’s a debt future generations are going to have to repay – a process that won’t be helped by new federal mandates.