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Financial Literacy

Financial Literacy

Home Finance Taxes Federal vs. State Budgets

Federal vs. State Budgets

You pay for some stuff; your parents pay for others.

That's not all that different from how the state and federal budgets work.

Who Pays for What?

How do we know whether the feds or the state government pays for something?

  • Sometimes, it's pretty easy. If Nevada needs a new college, the state pays for it. What happens in Vegas stays in Vegas and all that.

  • Sometimes, it's not so easy. Take a look at the border between Arizona and Mexico (no need to hop on a plane, just picture it in your head). That border is both a state border and a federal border between two countries. If we were to build a fence to prevent undocumented immigrants from coming into the U.S. (something some folks want), who pays for the fence? Since immigration is a federal issue and we're talking about who gets into the country, it's probably the feds who will get to pick up the tab (though they might argue that Arizona should chip in).

  • Next question. The Canadians attack Vermont. Some sort of heated conflict about maple syrup; we don't have the details but we're guessing it has something to do with boredom and long, cold winters. Who pays for defense? Well, they seem to be attacking only Vermont for now and are happy to leave Maine to its lobsters. But an international border was crossed, so that seems like a federal issue. Defense is also a federal issue because building up an army requires a lot of tax dollars from hundreds of millions of Americans. Vermont just doesn't sell enough cheddar to come up with that kind of money.

  • Prisons are yet another story. Most crimes happen somewhere, so you would think that wherever someone committed a crime is where they'd go to jail. But that's not exactly how it works: there are federal crimes and state crimes. Whether someone goes to a state prison (paid by the state) or a federal prison (courtesy of the federal tax system) depends on what kind of bad stuff they got into and where they committed the crime.

So, yes, there is some overlap, but probably less than there is in your own house.

State budgets and fed budgets are mostly separate and integrate only in some spots. That's why it's possible for cities and states to go bankrupt while the federal government up in D.C. seems healthy as a horse.

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