I’ve been beating this point for awhile, and the beatings will continue until Congress does something about it (from the Center on Budget and Policy Priorities):
But in over half the states, new gaps have recently emerged for 2010, as revenues have fallen short of the projections on which the 2010 budgets were based (even though the projections themselves seemed pessimistic at the time). Already, 41 states have identified mid-year gaps — some but not all of which have already been addressed through spending cuts or other measures — totaling $38 billion or 7 percent of these budgets.
[...]
These new shortfalls are in addition to the gaps states closed when adopting their fiscal year 2010 budgets earlier this year. Table 2 combines these new gaps with previously reported gaps for 2010 — the gaps that were addressed when states wrote their budgets for this year. In total, 48 states have addressed or still face shortfalls in their budgets for fiscal year 2010, totaling $196 billion or 29 percent of state budgets — the largest gaps on record.
And because they’re the CBPP, they’ve provided a nifty graph:
Right now, the most effective thing Congress could do for the economy is provide direct aid to states and extend Medicaid funds, which will be cut off in December 2010. Filling the gap in state budgets will keep teachers, police officers, firefighters and civil servants employed, pump more money into the economy, and ensure that marginal Americans aren’t kicked off of their benefits when they need them most. It’s a no brainer.
OK, I’m in for this game. Is it more efficient for the states to raise taxes to pay for their shortfalls, or for the Congress to raise taxes to pay for the states” shortfalls, then determine how to allocate it, then hire a bureaucrat to implement the formula, and another to write the check?
Along the way, Congress will have to make assumptions that the states will spend the money as it sees fit, and write rules to ensure the funds are not wasted or spent on other things, or that the states don’t cut budgets in other areas.
I raise this as a serious question. I am not against taxes and tax increases. I am against raising taxes inefficiently. Make my money work. Don’t waste it.
I think it depends. In a normal economy, it’s a terrible idea; the state is simply in a better position to assess its needs. The problem is that in a failing economy, the tax base has fallen out and raising taxes is likely to do more harm than good. The federal government is in a better position to provide those funds, which can then be provided to states in the form of block grants that states can administer.