Fiscal Federalism

Ted DeHaven at the Cato Institute highlights an effort by Utah legislators to disentangle federal funding from state-run programs. An editorial in the Washington Post written by the President of the Utah Senate and the Speaker of the Utah House delineates this plan to shift management and funding of state-run programs exclusively to the State of Utah.

Let’s select a few programs — say, education, transportation and Medicaid — that are managed mostly by Utah’s government, but with significant federal dollars and a plethora of onerous federal interventions and regulations.

Let Utah take over these programs entirely. But let us keep in our state the portion of federal taxes Utah residents pay for these programs. The amount would not be difficult to determine. Rather than send this money through the federal bureaucracy, we would retain it and would take full responsibility for education, transportation and Medicaid — minus all federal oversight and regulation.

It sounds good to me. I’m not even sure how the federal government justifies most of these expenditures in light of that whole 10th Amendment thing. The federal government has very specific duties, and should not even be considering spending money on these state-level programs. But it does fund them, and threatens to pull funding if states do not adopt certain policies, like a drinking age of 21 or 55 mph speed limits.

Such a movement would be a boon to limiting the power of the federal government, and reducing federal taxes and spending. But there are a lot of industries that depend upon those funds and subsidies, from education to farming, and in many states (Kansas Included) divestment of such funding will be unpopular politically.

Such a notion terrifies proponents of big government because state budgets are generally constrained by balanced budget requirements, debt inhibitions, and the inability to print money. States are also more limited in how much they can abuse taxpayers for the simple reason that citizens can move to a friendlier environment. Indeed, one of the beautiful aspects of returning to fiscal federalism is that it would strengthen this competition that $600+ billion in annual federal subsidies has somewhat neutered.

Yeah, what he said.

The article includes a Cato Policy Analysis on federal subsidies to state and local governments, as well as a more thorough article on fiscal federalism.

Let’s select a few programs — say, education, transportation and Medicaid — that are managed mostly by Utah’s government, but with significant federal dollars and a plethora of onerous federal interventions and regulations.

Let Utah take over these programs entirely. But let us keep in our state the portion of federal taxes Utah residents pay for these programs. The amount would not be difficult to determine. Rather than send this money through the federal bureaucracy, we would retain it and would take full responsibility for education, transportation and Medicaid — minus all federal oversight and regulation.

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