Unformatted text preview: rt has increasingly come to rule in favor
of state autonomy in cases involving federalism.27
All of these factors helped produce a pro-decentralization mood in the United States. Still, as noted above, the federal
grant-in-aid system remains overwhelmingly dominated by categorical grants, and Congress continues to add
burdensome requirements on the states. 4. FISCAL IMBALANCES Any federal system is likely to contain horizontal fiscal imbalances, and the more decentralization, the more the
imbalance. The US experience is no exception. At the revenue raising level, the ACIR has occasionally measured the
tax-raising capacity of all fifty states, and their tax effort. Tax capacity, or tax bases available to states, produced a range
from 68-146 (indexed to 100 for the average state) in 1991, the most recent year available. Thirteen states were below
90. Tax effort (the actual amount of revenue raised as a percentage of the base) ranged from 73 to 156 that same
The decentralization, both explicit and implicit, that is occurring in the United States is likely to worsen this tendency, and
widen, for example, educational and health care disparities between the states. An additional influence is the fact that
revenue raising in more constrained in some states than others, most importantly by the existence of state constitutional
and/or statutory limits on revenue raising.
Are we, as a nation, willing to accept these disparities? Probably, as we have historically been willing to tolerate them.
Indeed, the national government has rarely been able to enact legislation with a redistributive focus. For example there
were many attempts to make the revenue sharing program more needs based, but they were ultimately unsuccessful.
This is partly due to the need of every member of Congress to protect his or her own district or state in the determination
of any formula, and the inability of interest groups representing state and local governments to get support from their
membership for redistribution. The primary means of redistribution in the federal grant system today is the sliding
matching share for state Medicaid matching, which is lower the lower a state’s per capita income. State aid to their local
units of government, on the other hand, tends to be much more redistributive, often attempting to ameliorate disparities
in local revenue-raising ability.
The only time vertical fiscal imbalance was seriously used as an argument for federal aid was during the debates over
the general revenue sharing program. That argument, while still intellectually valid, lost political credence as the federal
government’s budget deficit grew. This is not to say that the national government’s revenue raising superiority is not an
inherent element in justifying federal aid, but it clearly is not the explicit reason, as evidenced by grant design and the
termination of general revenue sharing. 26
28 See Wallin, op. cit., pp. 124-127.
See John Kincaid, “The Devolution Tortoise and the Centralization Hare, “ New England Economic Review, May/June 1998.
Significant Features of Fiscal Federalism 1994. 31 Commission on Fiscal Imbalance...
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