A new study released by the Civitas Institute and authored by Dr. Eric Fruits of Economics International Corp. finds that as states accept more federal funds, their state and local taxes increase.
In North Carolina, the research shows that each additional dollar of federal intergovernmental transfers to the Tar Heel State is associated with 81 cents in additional state and local taxes and fees.
In short, as North Carolina accepts more federal funds, your state and local taxes rise.
Importantly, these results suggest that the increases in federal grants to state and local governments associated with the ACA’s Medicaid expansion will have significant future tax implications at the state and local level as these governments raise revenue to continue, expand, and promote these newly funded programs into the future and as federal support tapers off once the expansion is in place.
Researchers believe that these findings have two main causes: states use federal dollars to supplement their spending rather than a substitute for state and local revenue; and matching requirements and maintenance of effort mandates require additional state and local expenditures on programs they otherwise may not have funded.
Also of concern is how the acceptance of federal funds by states erodes state sovereignty. The strings attached to federal funds means that states accept more and more rules created in DC rather than controlling laws and rules more locally.