Federalism & Unequal States

Each state has its own capacity to raise revenues, depending on the number of citizens, the kinds of jobs that are available, its chosen tax rates, and other features.  For this reason, per-capita spending on services that are state responsibilities will not be equal across the states.  For example, according to one source, 2015 spending on kindergarten through high school in the highest spending state, Vermont, was almost three times as much per student as the lowest spending state, Utah.1

One way to even things out would be for the federal government to transfer money from the wealthiest states to the poorest. In fact, the United States is the only country among the wealthy federal systems that does not have a comprehensive fiscal resource equalization scheme.2  Such a change would be feasible only if donor state citizens were comfortable in seeing some of their resources shifted to other states in the name of equity. There is some precedent for establishing a fiscal equalization program: the revenue sharing program established under the Nixon administration. It ran from 1972 through 1986. This program did not clearly establish equalization as a goal, but the distribution formula did include an equalization element.3

Image: Salt Lake City, CC0. Unknown author.


  1. See pages 45-46 in Schapiro, R. (2019). Unequal States, Unequal People: Fiscal Inequity and the Values of Federalism. https://ssrn.com/abstract=3348054

2. See page 8 of Schapiro (2019).  Some federal programs do use formulas meant to reduce the degree of inequality but their net effect is weak. See page 49 for an example from the education sector.

3. See pages 3-6 in Congressional Research Service (2009).

Comments

  1. Redistributive programs to promote the economies of lagging regions have largely been confined to infrastructure investments for roads and bridges in the case of Appalachia, and dams and electric plants in Tennessee. The measures that you propose are far more bold, esp. if they are based on the lofty, but extremely fuzzy, principle of equity. Such a measure would nearly destroy federalism and establish a unitary system of government.

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