USA Today reports,

In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.

Thanks to Nick Schulz for the pointer. The gist of the story is that this is a cyclical phenomenon, with the recession hurting state tax collections and stimulus spending making up the difference.

My prediction is that this will persist even when there is a recovery. It is bad news in many respects. It makes the spenders (in this case, state and local governments) even less accountable for making sure that money is well spent. For the politicians, the incentive to spend other people’s money is big enough when its your own constituents paying the taxes, and it’s even bigger when someone else’s constituents are paying the taxes.

UPDATE: The Heritage Foundation blog points out how much the Federal contribution to state and local Budgets has varied under different Administrations.