Essentially this post is to extrapolate on Prof. Richards’s comment to my last post. This comment posed the question of whether or not states, like Louisiana, really pay back “their share” of what they pledge to put up for state projects that the feds either match or pay more for. This is an attempt to force states to pay for part of the pork projects that are done in their state, but some could view it as a step in the right direction for state accountability. The more a state pays for a project, the more incentive a state has to value whether that project is “worth it.” As a result, “strategic retreat from the coast” may seem more cost-beneficial then billions on a “wall of land” stretching across the state. Especially when, in all likelihood, that wall will have the Gulf lapping against it in a few decades.
Regardless, this New York Times addresses many of the current problems states like California, and New York are having with trying to balance their budgets. This is worth taking a look at because there is even a shout-out to “federalism” and how the federal government would be there to help one of these states out in the event of bankruptcy. However, the larger problem is that the federal government can’t bail everyone out, and more and more states are on the cusp of financial ruin. The articles mentions Colorado’s attempt to grab a $500 million surplus from one of its state workers compensation insurer that was recently privatized. Also it notes New Hampshire’s Supreme Court ruling that ordered the State to give back $110 million that it took from its medical malpractice pool. The bottom line is that more and more states are strapped for cash and are trying to be “resourceful” to say the least in keeping their heads above water.
http://www.nytimes.com/2010/03/30/business/economy/30states.html?pagewanted=1&_r=1
Bottom line: The question is not how much they pay or if they do, but the above article answers “WITH WHAT MONEY CAN THEY PAY THE FEDS?”
Proposing a solution, The CATO Institute’s Journal published a piece entitled, “Reverse Revenue Sharing, A Return to Fiscal Federalism” the link is here: http://www.cato.org/pubs/journal/cj14n1-7.html and what essentially the author is advocating for is a return to a MODIFIED arrangement that was present under the Articles of Confederation (try not to laugh too hard Prof. Richards – hear him out).
He mentions that the flaw under AoC was that many states were free riders and thus did not contribute anything to the federal “pot” so to speak. This free-rider problem is now being seen under our current system where state governments are not toting their fair share of projects. Granted our current fiscal sharing scheme is not as unfair as it was during AoC, but the author notes that by decentralizing the taxing power the “advantages include reducing the influence of special interests on political decisions, increasing the accountability of government at all levels, and motivating a more rational assignment of responsibility for government functions between the federal, state, and local levels of government.” All of these sound wonderful to me and the author does a good job of explaining how that is possible.
Empirical evidence supports his point: “In 1929 the federal government collected approximately one-third of all government receipts in the United States and accounted for slightly more than one-fourth of total government expenditures. Currently the federal government collects almost two-thirds of all government receipts in the United States and accounts for almost 70 percent of total government expenditures. As the federal share of government revenues and expenditures increased, so did the relative size of government in total. In 1929 total government spending was approximately 10 percent of national income. Currently total government spending is over one-third of national income.”
He goes on to note that special interests are the ones who really are causing our current woes: “The ability and motivation of such interest groups to take political action is seldom countered by those paying the bill because their numbers are so large and their individual stakes are so low. When considering an explanation for political centralization within the private-interest model of government, one has to examine how organized interest groups (those with the most to gain from political action) benefit from that centralization. For several reasons politically influential interest groups stand to benefit when the federal government’s control over taxing, and therefore spending, is increased.”
Bottom Line: Leave the taxing power with the states. However this time, include a requirement for states to pay a flat % across the board to the federal government.
Why don’t they just force the federal government to balance its budget every so often? Seems like it wasn’t all that long ago- mid 90s? that we had a budget surplus. Was that an illusion or was it real? If the feds had to balance their budget every year or two, wouldn’t that force them to start cutting out some of the pork and/or shifting some of this stuff back to the states?
It was a real budget surplus and it was also a real economic boom. If Bush II had not cut the tax rates that were enforce in the 1990s, we would be close to a balanced budget right now, despite the wars. You find that if you look at the historical record, there is no evidence that lower taxes lead to a better economy. There are booms with high taxes and low, and we have about the lowest in modern times now and it is not doing squat for the economy. But that is to be expected – taxes are only an issue when business are profitable. They do nothing to stimulate a business that is not profitable or is starting out.
Remember who pays the bills for the federal government? CA and NY would probably like your proposal. Their state budgets would be fine if they just broke even on federal taxes paid. But they have a net outflow of dollars to prop up LA and other states. The interest group analysis is right, with LA coastal restoration being a classic. But it also includes crop supports in the farm bill, water projects all over the country, roads to rural areas that are really not economically justified, and all the other federal welfare projects.
The point of my post was that if the States were collecting the bulk of monies and couldn’t rely on the Federal Government to fund their “pipe deams” then we would be forced to look at what it cost effective and what is wasteful.
If we want to discuss whether or not lowering taxes really benefits the economy then that will have to be the topic for another day.
It’s an interesting idea. Maybe some sort of equilibrium would be reached. A state would not want to give too much money to the feds; so they would have an incentive to kep taxes low so as to not send barrels of money out of state and try to reep the money of other states via federal aid. On the other hand, their would be demand from their citizens to keep the infrastructure running (roads, police protection, sanitation management, etc.), so they would have to tax enough to meet these needs. There could be just enough pull in each direction to reach an acceptable level of state-federal tax income.
But AoC? The real question is whether you are actually a Federalist…or an Anti-Federalist?