April 15, 2007
Fiscal Equalization for the U.S.?
Posted by Leandra Lederman

I got back this evening from the terrific Critical Tax Theory Conference held at UCLA. Yesterday was a full day of presentations on a wide array of interesting topics. This post focuses on the intriguing paper that Kirk Stark, one of the organizers of the conference, presented, entitled "Rich States, Poor States: American Federalism and the Politics of Fiscal Equalization." The project analyzes the use of fiscal equalization grants to reduce disparities in resources between rich states (or provinces) and poor states. These grants are "no strings attached" grants from a country's central government to states with lower-than-average taxing capacity (regardless of the amount of tax each state actually collects). Kirk listed numerous countries that use such grants, including Canada, where they are a constitutional requirement.

A focus of Kirk’s project is the political issues that fiscal equalization would raise in the U.S. If fiscal equalization were adopted here, most of the recipient states would be in the south. For example, based on fiscal capacity data from a 2006 Tax Policy Center study, Kirk determined that the top seven recipient states by size of per capita payment would be Mississippi, West Virginia, Arkansas, Alabama, Oklahoma, Louisiana, and South Carolina. In addition, most of the states that would receive equalization grants are "red states," and red states would get the bulk of the grant monies. The question of whether Canadian-style fiscal equalization should be adopted in the U.S. thus raises interesting political questions. As Kirk asked, are we currently in an era in which fiscal equalization would be possible? Desirable?

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