Ratcheting Taxes

Nobel laureate economist Milton Friedman once quipped, “Nothing is so permanent as a temporary government program.” Indeed, once created, government programs remain long after the precipitating event has passed. State programs created by federal grants like the American Recovery and Reinvestment Act (ARRA) are no exception. Even when the federal funding runs out, the programs remain—states simply fund them through increased state taxes. In fact, state and local taxes increase roughly 40 cents for every dollar in federal grant money received in prior years.