CRS Issue Statement on Federal Fiscal Relations with States and Localities

Steven Maguire, Coordinator
Specialist in Public Finance


The federal government and Congress influence the tax and spending decisions of state and local governments in several ways. First, the federal government transferred roughly $650 billion to state and local governments in the last fiscal year for a variety of spending initiatives, some accompanied by federal mandates. Second, the federal tax code includes many provisions that aid state and local government more indirectly, such as the deduction for state and local taxes paid and the exemption from federal income taxes of the interest paid on state and local government bonds. These transfers are accounted for as tax expenditures in contrast to direct expenditures. Third, Congress oversees interstate commerce and will sometimes intercede in state and local tax and trade issues. In addition, changes in federal taxes often impact state and local government taxes indirectly such as changes to federal estate taxes and corporate income taxes. Fourth, tribal areas are subject to a unique set of tax laws that sometimes challenge existing federal oversight.


Date of Report: January 7, 2010
Number of Pages: 3
Order Number: IS40310
Price: $7.95

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