Stimulating More Taxes

by Ashley Muchow Illinois has received $8.4 billion in stimulus funds since the American Recovery and Reinvestment Act (ARRA) was passed in early February of last year. While these funds came as life preservers to some, a recent Mercatus on Policy study shows quite the opposite. According to Russell Sobel and George Crowley of the Mercatus Center, federal grant funding leads...

by Ashley Muchow

Illinois has received $8.4 billion in stimulus funds since the American Recovery and Reinvestment Act (ARRA) was passed in early February of last year. While these funds came as life preservers to some, a recent Mercatus on Policy study shows quite the opposite.

According to Russell Sobel and George Crowley of the Mercatus Center, federal grant funding leads to state revenue shortages and subsequently, tax increases.

Sobel and Crowley refer to the “ratchet effect” that occurs when spending programs create their own political factions that fight strongly for their continuance. Instead of dissolving as soon as relief has been provided, once “temporary” programs become permanent–permanent programs that are left for the state to fund (insert: taxpayers).

For every $1 in federal aid received during the past five years, states must increase their total own-source revenue by $0.42 and their total tax revenue by $0.33.

This isn’t good news for Illinois. If this proves to be the case, the $8.4 billion received in federal stimulus funds since June is set to become $3.5 billion in additional expenses and nearly $3 billion in extra taxes.