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Time for Real Federalism

April 8, 2013 in Economics

By Doug Bandow

Doug Bandow

Everyone except President Barack Obama understands that the federal government has a spending problem. Yet Uncle Sam gives away more than $600 billion to states and localities every year. It’s time to turn off the spigot, implementing the Reagan vision of transferring program responsibilities and revenues sources away from Washington.

The original governmental system for the newly independent colonies envisioned states funding the national authorities. There was no enforcement mechanism, so the Articles of Confederation didn’t yield a very effective continental government. But the principle made a lot of sense. The best way to constrain national politicians was to make them dependent on local folks for money. No extravagant usurpations of the liberty of citizens or authority of states.

The Articles were tossed aside when the Constitution was ratified. It provided the so-called federal government with independent sources of revenue, but still envisioned states playing the dominant government role in citizens’ lives. The national government primarily relied on tariffs and the proceeds of land sales for money. Washington had no seemingly endless source of cash either for its own use or for distribution to others.

Alas, the Civil War demonstrated the truth of Randolph Bourne’s axiom that “war is the health of the state.” The national government avidly pursued new revenue sources to satisfy its voracious appetite for cash to fund the invasion of the southern states. Although federal outlays dropped when the conflict ended, federal memories of the joy of taxing did not. By the early 20th century Washington had a vast new source of money, the income tax, and ever higher expenses, including a big war overseas, an economic crisis, and another, even larger global war. Authority, prestige, and resources all flowed to Washington.

In our system, it’s the states that should be funding Washington, not the other way around.”

As the national government absorbed ever more of America’s resources, states and localities eventually became dependent on Uncle Sam. There are constitutional restrictions on what the national authorities can tell other governments to do. There are no similar limits on what the national authorities can bribe other governments to do. Hence the rise of federal grants to states and localities.

Although the number of programs and amount of outlays have varied over time, the federal role has expanded over time. Inter-governmental subsidies increasingly have concentrated in a few areas. The Congressional Budget Office recently reported: “Federal grants for health programs, primarily Medicaid, have …read more
Source: OP-EDS

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