Think about ending highschool and realizing that it doesn’t matter what path you are taking — school, a job, or beginning a enterprise — your cash doesn’t go so far as it ought to. Your automotive mortgage is dearer, hire retains rising, and groceries value extra month-to-month. In the event you go to school, tuition is increased; for those who don’t, extra of your paycheck disappears in taxes. This isn’t simply dangerous luck — it’s the results of reckless authorities spending that fuels inflation, drives up rates of interest, and makes it more durable for everybody to get forward.
In fiscal yr 2023, federal funds to state and native governments totaled $1.1 trillion, practically one-fifth of all federal spending and 4 p.c of US GDP. This cash doesn’t come free — it’s taken from taxpayers, borrowed from future generations, or printed by the Federal Reserve, creating inflation.
Even states that declare to be fiscally conservative are hooked on federal cash. Texas took in $102 billion for its 2024-2025 funds, practically one-third of its complete funds. Which means Texas, like all states that common 36 p.c of their funds from federal funds, is extremely tied to federal mandates for what it desires to do.
The largest driver of this dependency is Medicaid, which acquired $616 billion in federal spending in 2023, over half of all federal funds to states. Many states expanded Medicaid with non permanent federal funds, however when Washington inevitably pulls again, states will likely be pressured to boost taxes, minimize providers, or each, burdening many households. The identical sample applies to federally backed schooling and transportation spending.
The extra states depend on Washington, the much less management they’ve over their insurance policies.
This isn’t nearly wasteful spending — it instantly hits American households. Extra deficit spending contributes to increased rates of interest, making mortgages, scholar loans, and automotive funds dearer. The Fed shopping for Treasury debt to maintain rates of interest decrease by rising the cash provide creates inflation, forcing households to stretch their scarce budgets additional.
Each greenback the federal authorities spends on state applications is taken from the financial system, the place companies and people might have put it to way more productive use. The continued funds combat in Washington makes one factor clear: states can’t depend on federal funds eternally.
By way of the Division of Authorities Effectivity (DOGE), President Trump and Elon Musk have began freezing wasteful grants and pointless spending — steps that ought to have occurred way back. Critics declare that is an overreach, however the actual problem is many years of reckless spending resulting in a $36 trillion nationwide debt and a Congress unwilling to behave.
The Keynesian concept that authorities spending fuels development is a delusion. Milton Friedman warned that spending is a value, not a profit. Each greenback Washington spends is taken from the productive non-public sector, the place actual wealth and innovation are created. Extra authorities spending crowds out non-public funding, reduces productiveness, and leaves taxpayers with increased prices.
States which can be essentially the most depending on federal help — Louisiana, Alaska, and New Mexico, the place over 50 p.c of income to cowl their budgets comes from Washington — additionally are likely to have among the weakest economies. The extra states depend on federal funds, the much less incentive they need to hold taxes low, minimize laws, and encourage non-public funding.
Trump’s spending freezes have upset politicians who depend upon federal funds to prop up bloated budgets, however the actual problem is that states allowed themselves to turn into dependent.
Excluding federal funds, state spending has grown by 61.1 p.c from 2014 to 2023, far outpacing the 31 p.c in compounded inhabitants development plus inflation. However after all, a lot of that state spending enhance is matched by as a lot, if no more, in federal funds, creating perverse incentives for states to spend extra. However excluding federal funds from state spending over that decade helps to take away a lot of the rise in federal funds to states for these states that expanded Medicaid. Finally, had states stored their spending in verify, they may have saved taxpayers $454 billion in 2023.
With Washington dealing with a rising debt disaster, states should act now to arrange for much less federal funding.
That begins with transparency — understanding precisely how a lot cash comes from Washington, the place it goes, and which applications will likely be in danger when federal {dollars} dry up. Then, states should rein in spending, get rid of inefficiencies, and take again management over schooling, healthcare, and transportation so they don’t seem to be on the mercy of federal strings.
Some states are already transferring in the suitable course.
Practically a dozen — together with Oklahoma, Louisiana, Iowa, Texas, and Florida — have launched a DOGE to show waste and inefficiency. Oklahoma’s Division of Authorities Effectivity has already uncovered tens of millions in pointless spending, offering accountability for spending with taxpayer cash.
Lengthy-term spending aid, nonetheless, requires Congress and state legislatures to behave. Whereas Trump and DOGE are taking steps, solely Congress could make these cuts everlasting. With out legislative motion, future administrations might reverse spending freezes. Lawmakers who declare to be fiscal conservatives should show it.
Some states have already proven that spending restraint works. Alaska, Colorado, North Dakota, Oklahoma, and Wyoming have stored their total funds development beneath inflation and inhabitants development during the last decade, making certain taxpayers aren’t overburdened. Others, like Louisiana, Massachusetts, and North Carolina, have slowed state spending development beneath this key fee however stay too depending on federal funds that grew extra quickly.
The Sustainable Finances Mission by Individuals for Tax Reform discovered that if governments had capped federal and state spending development at inhabitants development and inflation, taxpayers might have saved $2.5 trillion in 2023. That cash might have been invested in companies, used to create jobs, or saved for the long run. As an alternative, extreme spending has made our lives harder.
Rising rates of interest and nationwide debt will finally pressure Congress to scale back spending, leaving states with two painful decisions: large tax hikes or extreme service cuts. There aren’t any extra excuses. Congress should spend much less. To organize for this inevitability, states should spend much less, reject federal cash with strings connected, and embrace free-market ideas earlier than it’s too late.
