The New Republic has an excellent discussion of the the problems created by the Federal-State Tax Switcheroo:

Ever since World War II, the nation's governors, Republican and Democrat alike, have relied on a bookkeeping switcheroo in which Congress taxes Americans (that is, residents of states) at a higher rate than the federal budget actually requires and then sends some of the revenue back to states.

The article addresses the current debate about whether the federal government should be sending more money to the states, but, more importantly, it draws attention to the systematic problems the switcheroo creates -- most importantly, in my view, that it distorts democracy:

This arrangement allows governors to denounce the big spenders in Washington while simultaneously relying on the big spenders in Washington to keep state budgets in the black. It also allows state income taxes and other local levies to be artificially lower than if they reflected the true cost of state spending, while focusing voter rage on a federal tax line that is artificially high.

Definitely worth reading.
- posted by Tom Sawyer @ 4:20 PM