Alaska Rep. Craig Johnson’s greatest disappointment with politics today is the inability of policymakers to disagree without being enemies. That inability to get along in Washington, D.C., is creating problems in the states, Johnson and other members of The Council of State Governments’ leadership believe.

It’s easy for today’s state leaders to be lured into thinking that the state-federal relationship is at its lowest point ever—beyond repair due to unfunded and underfunded mandates, seemingly capricious regulations and infinite bureaucracy—and that no darker days have occurred. But what state leaders must understand, placing it into perspective, is that these sentiments are not new and the concerns shared by many state leaders today echo those voiced by CSG’s founders in the early 1930s and throughout the past 80 years of American democracy.

By Anne Stauffer, Director of Fiscal Federalism at The Pew Charitable Trusts
and Former Federal and State Budget Official

The relationship between federal and state finances is complex, not well understood and vital to almost every aspect of Americans’ lives. Federal and state tax dollars jointly support schools, roads, health care, public safety and other key programs. This partnership, however, is under pressure from the enormous fiscal challenges of the past several years and the ongoing fiscal uncertainty at the federal level. An informed conversation using real data on the state impact of federal policies could help policymakers make the tough choices required to put all levels of government on a path to fiscal stability.

The legislative and executive branches have been in a longstanding gridlock, making it difficult to assess their standing on federalism. 

But the U.S. Supreme Court has made its standing clear. The last two Supreme Court terms have produced four blockbuster decisions. All four of these cases have one thing in common—federalism.

A study released by the National Governors Association (NGA) and The Council of State Governments (CSG) found that repealing federal tax provisions that most affect state and local budgets “would bring a net loss of approximately 417,000 jobs and $71 billion in real GDP” over the next 10 years. The study, Macroeconomic Analysis of Federal Tax Proposals Affecting State and Local Budgets, analyzed two scenarios: one would place a 28 percent cap on the value of both state and local tax deductions and the earned interest exclusion for municipal bonds; the other would repeal both entirely. Although the magnitude of the effects of these scenarios varies significantly, the overall result is similar— higher tax burdens decrease consumption and savings rates, while lower levels of infrastructure spending decrease construction activity and the economic spillover associated with it.