Federal-State Issues
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Additional Federal Fiscal Relief Needed to Help States Address Recession’s Impact
Updated November 19, 2009
States face a serious fiscal problem that could force them to institute additional deep budget cuts and tax increases in 2010, weakening the fragile economic recovery and harming vulnerable children, seniors, and people with disabilities, among others. The federal assistance that states received for their Medicaid programs … -
An Update on State Budget Cuts
Updated November 19, 2009
With tax revenue declining as a result of the recession and budget reserves largely drained, the vast majority of states are making spending cuts that hurt families and reduce necessary services. These cuts, in turn, will make the recession worse because families and businesses have less to spend in their local economies. … -
Recession Continues to Batter State Budgets; State Responses Could Slow Recovery
Updated November 19, 2009
The worst recession since the 1930s has caused the steepest decline in state tax receipts on record. As a result, even after making very deep cuts, states continue to face large budget gaps. New shortfalls have opened up in the budgets of at least 35 states for the current fiscal year (FY 2010, which began July 1 in … -
Podcast: State Budget Cuts and Tax Increases Put Fragile Economic Recovery at Risk
November 11, 2009
The risk that, without more federal aid, states efforts to address their budget problems could cost the economy 900,000 jobs is discussed by Bob Greenstein, Mark Zandi, chief economist of economy.com, and Senior Advisor Iris Lav.
Duration: 21:42
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Banning Taxation of Online Hotel Reservations Is Unwarranted and Could Cost States and Localities Billions of Dollars
Revised September 18, 2009
For the past two years, online travel companies like Expedia and Priceline have been seeking enactment of federal legislation that would ban state and local taxation of hotel room rentals when booked by such a company or by a conventional travel agent. Most recently, the legislation was circulated as a potential amendment to … -
Federal Fiscal Relief Is Working As Intended
Updated June 29, 2009
As dire as the states’ fiscal condition is — with dramatic revenue downturns leading in some cases to unprecedented service cuts — evidence shows this bad situation would be substantially worse if not for federal recovery assistance. The $787 billion American Recovery and Reinvestment Act package enacted in February included about $140 billion for states … -
Obscure Tax Provision of Federal Recovery Package Could Widen State Budget Gaps
May 19, 2009
States could lose up to $5.5 billion in business income tax revenues over the next three years as a result of a little-known provision in the federal economic recovery package enacted in February. States can, however, easily avoid this revenue loss by making offsetting changes in their tax laws. For states to allow … -
Minority of States Still Granting Net Operating Loss “Carryback” Deductions Should Eliminate Them Now
Revised May 11, 2009
As a result of the current recession, nearly all states are experiencing the most serious fiscal crisis of at least the last 25 years. Many are already being forced to cut vital services, lay off employees, increase taxes and college tuitions, and tap reserves. In this context, they can ill-afford maintaining any … -
State Taxes On Inherited Wealth Remain Common
Revised April 10, 2009
Taxes on inherited wealth are a traditional and common revenue source for states. Prior to the passage of the federal estate tax cut in 2001, every state levied an estate tax that allowed them to “pick-up” a share of federal estate tax revenues. The state “pick-up” estate taxes did not increase total estate tax … -
If States Fail to Use Stimulus Funds as Intended, Efforts to Strengthen Economy Could Be Undercut
February 24, 2009
A few governors and legislative leaders have suggested that their states might not accept the full amount of fiscal relief in the new recovery legislation or might use the funds to finance tax cuts or build up reserves, rather than spend them as Congress intended.[1] Such actions could weaken the new law’s impact, and possibly even … -
Funding For States in Economic Recovery Package Will Close Less Than Half of State Deficits
February 20, 2009
The state fiscal situation is dire. Revenues are declining, and the need for services such as Medicaid is rising as people lose income and jobs. Before passage of the economic stimulus package, state deficits were projected to equal $350 billion over the next 30 months. Because nearly all states are required to balance their budgets, states have begun to cut … -
Recovery Act Provides Much-Needed, Targeted Medicaid Assistance To States
February 13, 2009
The American Recovery and Reinvestment Act includes an $87 billion temporary increase in the share of Medicaid that the federal government would pay over nine calendar quarters (October 1, 2008, through December 31, 2010). It would provide three elements of Medicaid fiscal relief assistance to states, as outlined below.… -
Senate's Cuts to "Fiscal Stabilization Fund" Weaken Stimulus Value of the Economic Recovery Bill
February 10, 2009
Overview and Summary The House economic recovery bill includes a $79-billion “State Fiscal Stabilization Fund” to help state and local governments fund education and other key services. However, the Senate — as a result of the Collins-Nelson amendment — has reduced the amount of funding to $39 billion and … -
Video: Nicholas Johnson, Director of the Center's State Fiscal Project, speaks about state budget on CNN's Lou Dobbs
October 3, 2008
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House Stimulus Plan Effectively Targets Fiscal Relief to States
September 26, 2008
The House Leadership’s new stimulus proposal includes more than $14 billion in fiscal relief for states. This is designed to help states avert budget cuts and tax increases that they otherwise will have to institute to balance their budgets but that will make the economic downturn worse by withdrawing demand from the … -
Key Components of House and Senate Economic Recovery Packages Would Boost the Economy and Provide Needed Relief to Struggling Families
September 26, 2008
Congress is properly focused on designing an appropriate measure to address very serious problems in the financial markets, which many experts persuasively argue is essential to help avert a meltdown in the financial markets and a potentially severe recession. The problems in the financial sector, however, are not the only ones the … -
States Can Opt Out of the Costly and Ineffective "Domestic Production Deduction" Corporate Tax Break
July 29, 2008
States are losing hundreds of millions of dollars to a relatively new and rapidly growing corporate tax break that in most states never even received a vote in the state legislature. The federal government created this tax break, known as the “domestic production deduction,” in 2004. Since most states base … -
Proponents' Case for a Federally-Imposed Business Activity Tax Nexus Threshold Has Little Merit
June 26, 2008
A bill under consideration in both houses of Congress would take away from the states authority they currently have to tax a fair share of the profits of many corporations that are based out-of-state but do business within their borders. The House version of the “Business Activity Tax Simplification Act,” … -
Proposed “Business Activity Tax Nexus” Legislation Would Seriously Undermine State Taxes on Corporate Profits and Harm the Economy
June 24, 2008
A bill under consideration in both houses of Congress would take away from the states authority they currently have to tax a fair share of the profits of many corporations that are based out-of-state but do business within their borders. The Senate version of the “Business Activity Tax Simplification Act” … -
Property Tax Limitation in the Senate Housing Bill is Unnecessary, Impractical, and Likely to Cause Harm
June 23, 2008
Legislation that the Senate is considering in response to the ongoing foreclosure crisis (H.R. 3221) includes a provision that would allow non-itemizers to deduct property taxes up to an amount of $500 for an individual and $1,000 for a couple.[1] It would deny the deduction, however, to residents of any locality that raises its … -
Statement by Iris Lav, Deputy Director, on Provision in Bipartisan Senate Housing Package Affecting Local Property Taxes
April 3, 2008
While the Senate housing package would establish a new property tax deduction for non-itemizers, a little-noticed provision of the bill would deny the new deduction to any resident of a locality that raises its property tax rate between April 2 and next January 1. By preventing localities from … -
Administration’s Medicaid Regulations Will Weaken Coverage, Harm States, and Strain Health Care System
Revised March 4, 2008
Over the last year, the Department of Health and Human Services (HHS) has issued a series of Medicaid regulations that could significantly affect health care at the state and local level. [1] These regulations, most of which alter longstanding Medicaid policies, do not require congressional approval. In fact, in some cases Congress … -
Economic Data Can be Used to Target State Fiscal Relief Effectively
March 3, 2008
States are experiencing major budget problems; more than half faced or are projecting deficits for the 2009 fiscal year. To meet their balanced budget requirements, many states have had to raise taxes and/or cut expenditures for services such as health care and education — actions that deepen the nation’s economic problems and offset some of … -
New Federal Law Could Worsen State Budget Problems
Revised February 28, 2008
The federal “economic stimulus” package enacted on February 13 not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year. The potential revenue loss comes at a particularly problematic time for states, because about half the states … -
Federal Grants to States and Localities Cut Deeply in Fiscal Year 2009 Federal Budget
February 4, 2008
Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to … -
The Internet Tax Freedom Act and the "Digital Divide"
September 10, 2007
Congress is again considering whether to make the “Internet Tax Freedom Act” (ITFA) permanent. Enacted in 1998 and temporarily renewed in 2001 and 2004, ITFA banned new state and local taxes on “Internet access” services. States and localities were barred from imposing their sales taxes on the typical $10 to $50 monthly fee … -
Renewing the “Internet Tax Freedom Act” Could Have an Especially Adverse Impact on Kentucky, Michigan, Ohio and Texas
Revised August 31, 2007
Congress is again considering whether to renew the “Internet Tax Freedom Act” (ITFA). Enacted in 1998 and temporarily renewed in 2001 and 2004, ITFA banned new state and local taxes on “Internet access” services. The primary goal of the law was to bar states and localities from imposing their sales taxes on the … -
Making the “Internet Tax Freedom Act” Permanent Could Lead to a Substantial Revenue Loss for States and Localities
Revised August 30, 2007
On May 23 and July 26, 2007, the Senate Commerce Committee and the Subcommittee on Commercial and Administrative Law of the House Judiciary Committee, respectively, held hearings on the “Internet Tax Freedom Act” (ITFA). ITFA was enacted in 1998 and renewed in 2001 and 2004. The law generally bars state and local taxation … -
The Administration Again Proposes to Shift Federal Medicaid Costs to States
February 14, 2007
In its new budget, the Administration proposes cuts in federal Medicaid funding that total $24.7 billion over the next five years and $60.9 billion over ten years through a combination of legislative changes and regulatory action. [1] These reductions are more than five times as large over the next five years as the federal Medicaid cuts enacted by the Congress last year … -
Federal Grants to States and Localities Cut Deeply in Fiscal Year 2008 Federal Budget
February 6, 2007
Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to compensate for declining federal funds. … -
State Revenue Losses From the Federal "Domestic Production Deduction" Will Double in 2007
January 2, 2007
In 2004, the federal government created an entirely new corporate tax break that is costing not only the federal government but also 29 states a large, and growing, amount of money. Known as the “domestic production deduction,” the tax break allows many corporations to claim a tax deduction equal to a percentage of certain … -
Press Release: House to Consider Restricting States’ Authority to Tax Corporate Profits
July 24, 2006
A bill expected to reach the floor of the U.S. House of Representatives tomorrow would strip states of their authority to tax a fair share of the profits of many corporations that are headquartered out of state but do business within their borders. Under the bill (H.R. 1956, “The Business Activity Tax Simplification Act”), large amounts of … -
Proposed Discretionary Caps Would Hit States Hard
July 5, 2006
The Senate Budget Committee on June 20 approved legislation (S. 3521) crafted by Budget Committee Chairman Judd Gregg (R-NH) that would make a number of far-reaching changes in the federal budget process.[1] Included in the legislation, which the full Senate may consider this summer, are provisions that would establish … -
Estate Tax "Compromise" Proposals May Endanger State Estate and Inheritance Taxes
Revised June 23, 2006
On June 22, the House of Representatives approved an estate tax proposal introduced by House Ways and Means Chairman Bill Thomas. While supporters of the proposal describe it as a “compromise,” it would in fact eliminate the vast bulk of estate tax revenue and has been more aptly characterized as “near repeal.… -
SCHIP Financing Update
June 5, 2006
The State Children’s Health Insurance Program (SCHIP), jointly financed by states and the federal government, provides comprehensive health insurance coverage to more than four million low-income children, most of whom would otherwise be uninsured.[1] In a prior analysis, we estimated that under current law, a number of states … -
Tax Cuts Proposed in President's Budget Would Ultimately Cause Large State Revenue Loses
March 16, 2006
When the federal government cuts taxes, those tax cuts sometimes cause reductions in state revenue as well. This occurs because most states with individual and/or corporate income taxes use the federal definitions of adjusted gross income and corporate income as the basis for their own income taxes. When a tax cut reduces the … -
The Administration’s Medicaid Proposals Would Shift Federal Costs To States
February 14, 2006
In its new budget, the Administration proposes net federal Medicaid funding cuts equal to $14 billion over the next five years and $35.5 billion over ten years through a combination of legislative changes and regulatory action. [1] These reductions follow on the heels of significant federal Medicaid cuts ($4.9 billion over five … -
Federal Grants to States and Localities Cut Deeply in Fiscal Year 2007 Federal Budget
February 7, 2006
Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to … -
Claims that Proposed Federal “Business Activity Tax Nexus” Bill Would Have a Negligible Impact on State Revenues Are False and Disingenuous
December 13, 2005
Background and Summary A bill under consideration in the U.S. House of Representatives would strip states of authority they currently have to tax a fair share of the profits of many corporations that are based out of state but do business within their borders. H.R. 1956, the “Business Activity Tax Simplification Act of … -
Federal "Business Activity Tax Nexus" Legislation: Half of a Two-Pronged Strategy to Gut State Corporate Income Taxes
Revised November 30, 2005
.style1 { margin-top: 0; margin-bottom: 0; } Background and Summary Major multistate corporations are engaged in a two-pronged strategy aimed at substantially increasing the share of their nationwide profit that is not taxed by any state. The strategy involves the enactment of complementary state and federal legislation. … -
Deep Cuts in Federal Grants in FY 2006 Budget Will Squeeze States and Localities
Revised February 9, 2005
Some of the spending austerity in the President’s budget is accomplished by passing down costs to other levels of government. This leaves states and localities the option of either curtailing services or increasing their own taxes to compensate for declining federal funds. … -
Press Release: Loss of Federal Funds From Eliminating Tenncare Would Offset State Savings and Injure State Economy
November 15, 2004
The possible elimination of Tennessee’s TennCare program, suggested by Governor Bredesen, would have far-reaching consequences for state residents that would reverberate far beyond the individuals who would be dropped from TennCare, a new report by the Center on Budget and Policy … -
The Potential Impact of Eliminating TennCare and Reverting to Medicaid: A Preliminary Analysis
November 15, 2004
On November 10, Tennessee Governor Phil Bredesen announced, “I have set in motion a process to dissolve TennCare and replace it with a traditional Medicaid program.”[1] The governor estimated that 430,000 low-income Tennesseans could lose TennCare coverage if the state eliminates the eligibility expansions … -
Connecting the Dots Federal Policies Are Worsening Wisconsin’s State and Local Budget Problems
October 6, 2004
Issued Jointly With Executive Summary At a time when state and local governments around the country struggle to overcome continuing budget shortfalls, the federal government is only making their jobs harder. Federal policies have contributed significantly to the fiscal crises in many states, including Wisconsin, by reducing state revenues … -
Press Release: Federal Policies Are Worsening Wisconsin’s State and Local Budget Problems
October 6, 2004
Issued Jointly With Federal policies have cost Wisconsin a net $2.4 billion since 2002, according to a report issued today by the Wisconsin Council on Children and Families and the Center on Budget and Policy Priorities, a Washington D.C.-based research and policy institute. Included in those policies are: Unfunded Mandates – …
