Imagine finishing high school and realizing that no matter what path you take — college, a job, or starting a business — your money doesn’t go as far as it should. Your car loan is more expensive, rent keeps rising, and groceries cost more monthly. If you go to college, tuition is higher; if you don’t, more of your paycheck disappears in taxes. This isn’t just bad luck — it’s the result of reckless government spending that fuels inflation, drives up interest rates, and makes it harder for everyone to get ahead.
In fiscal year 2023, federal funds to state and local governments totaled $1.1 trillion, nearly one-fifth of all federal spending and 4 percent of US GDP. This money doesn’t come free — it’s taken from taxpayers, borrowed from future generations, or printed by the Federal Reserve, creating inflation.
Even states that claim to be fiscally conservative are hooked on federal money. Texas took in $102 billion for its 2024-2025 budget, nearly one-third of its total budget. That means Texas, like all states that average 36 percent of their budget from federal funds, is highly tied to federal mandates for what it wants to do.
The biggest driver of this dependency is Medicaid, which received $616 billion in federal spending in 2023, over half of all federal funds to states. Many states expanded Medicaid with temporary federal funds, but when Washington inevitably pulls back, states will be forced to raise taxes, cut services, or both, burdening many families. The same pattern applies to federally backed education and transportation spending.
The more states rely on Washington, the less control they have over their policies.
This isn’t just about wasteful spending — it directly hits American households. More deficit spending contributes to higher interest rates, making mortgages, student loans, and car payments more expensive. The Fed buying Treasury debt to keep interest rates lower by increasing the money supply creates inflation, forcing families to stretch their scarce budgets further.
Every dollar the federal government spends on state programs is taken from the economy, where businesses and individuals could have put it to far more productive use. The ongoing budget fight in Washington makes one thing clear: states can’t count on federal funds forever.
Through the Department of Government Efficiency (DOGE), President Trump and Elon Musk have started freezing wasteful grants and unnecessary spending — steps that should have happened long ago. Critics claim this is an overreach, but the real issue is decades of reckless spending leading to a $36 trillion national debt and a Congress unwilling to act.
The Keynesian idea that government spending fuels growth is a myth. Milton Friedman warned that spending is a cost, not a benefit. Every dollar Washington spends is taken from the productive private sector, where real wealth and innovation are created. More government spending crowds out private investment, reduces productivity, and leaves taxpayers with higher costs.
States that are the most dependent on federal aid — Louisiana, Alaska, and New Mexico, where over 50 percent of revenue to cover their budgets comes from Washington — also tend to have some of the weakest economies. The more states rely on federal funds, the less incentive they have to keep taxes low, cut regulations, and encourage private investment.
Trump’s spending freezes have upset politicians who depend on federal funds to prop up bloated budgets, but the real issue is that states allowed themselves to become dependent.
Excluding federal funds, state spending has grown by 61.1 percent from 2014 to 2023, far outpacing the 31 percent in compounded population growth plus inflation. But of course, much of that state spending increase is matched by as much, if not more, in federal funds, creating perverse incentives for states to spend more. But excluding federal funds from state spending over that decade helps to remove much of the increase in federal funds to states for those states that expanded Medicaid. Ultimately, had states kept their spending in check, they could have saved taxpayers $454 billion in 2023.
With Washington facing a growing debt crisis, states must act now to prepare for less federal funding.
That starts with transparency — understanding exactly how much money comes from Washington, where it goes, and which programs will be at risk when federal dollars dry up. Then, states must rein in spending, eliminate inefficiencies, and take back control over education, healthcare, and transportation so they are not at the mercy of federal strings.
Some states are already moving in the right direction.
Nearly a dozen — including Oklahoma, Louisiana, Iowa, Texas, and Florida — have launched a DOGE to expose waste and inefficiency. Oklahoma’s Division of Government Efficiency has already uncovered millions in unnecessary spending, providing accountability for spending with taxpayer money.
Long-term spending relief, however, requires Congress and state legislatures to act. While Trump and DOGE are taking steps, only Congress can make these cuts permanent. Without legislative action, future administrations could reverse spending freezes. Lawmakers who claim to be fiscal conservatives must prove it.
Some states have already shown that spending restraint works. Alaska, Colorado, North Dakota, Oklahoma, and Wyoming have kept their entire budget growth below inflation and population growth over the last decade, ensuring taxpayers aren’t overburdened. Others, like Louisiana, Massachusetts, and North Carolina, have slowed state spending growth below this key rate but remain too dependent on federal funds that grew more rapidly.
The Sustainable Budget Project by Americans for Tax Reform found that if governments had capped federal and state spending growth at population growth and inflation, taxpayers could have saved $2.5 trillion in 2023. That money could have been invested in businesses, used to create jobs, or saved for the future. Instead, excessive spending has made our lives more difficult.
Rising interest rates and national debt will eventually force Congress to reduce spending, leaving states with two painful choices: massive tax hikes or severe service cuts. There are no more excuses. Congress must spend less. To prepare for this inevitability, states must spend less, reject federal money with strings attached, and embrace free-market principles before it’s too late.
