Is U.S. on cusp of federalist approach?

By Michael Hicks

The Trump Administration comes to Washington more than two decades after the very successful welfare reform efforts of the mid 1990s. Those reforms trimmed welfare rolls by two-thirds, lasting through even the height of the Great Recession.

The real hallmark of that effort was a suite of state-level experimentation with the program, which offered important insight to Congress and the Clinton Administration as they constructed these reforms.

Over the past two decades, there has been serious discussion by policy experts about a ‘new federalism’ that would change how government programs were operated.

In particular, there is interest in the state level experimentation that made welfare reform do successful. The hallmark of this ‘new federalism’ was the broad elimination of federal government control of programs. State block grants would replace the federal bureaucracy and vast array of programs.

For example, if the U.S. Department of Education were to close, and all its budget returned to states based on population, Indiana would receive close to $600 million, or almost 10 percent of the states’ current contribution to K-12 education. This could be repeated across the Department of Energy, of Commerce, of Agriculture and others, increasing the state budget by roughly 20 percent. It would be much more if health care were included.

Preserving the federal role is helpful. Federal income taxes are very progressive, offsetting the flat or regressive state tax systems based on sales and property taxation.

Also, we might wish to provide more money to poorer states through the funding formulary. These are political decisions that can be easily accommodated by ‘new federalism.’

Those on the fringe of politics have long opposed these policy steps. The right considers them a concession to large federal budgets. The louder critique has come from the left, who bristles at the thought of increased state involvement in public policy of this kind.

Obviously, the political calculus of these objections have changed. The right perceives a chance to rein in government, while the realists on the left know that their walk in the political wilderness will be lengthy.

One consensual benefit of this sort of government program is that it allows states to experiment with policies. True believers of all stripes should welcome this. With households increasingly inclined to vote with their feet, success or failure will accrue to the states with better policies.

South Dakota and Florida have different problems, as do Alabama and California. Policies that work will be adopted by other places. Moreover, it will be a lot easier to maintain the republic with people who are free to choose across a wide range of options, than it is to force them into a common cure.

This brings us back to the Trump Administration and the great opportunity before us. In a perfect and placid world, transitioning from the current environment of thousands of federal programs administered by hundreds of thousands of government workers could be done, with broad consensus slowly, over a couple decades.

The only other option to do this all at once, vigorously and with great enthusiasm. The Trump Administration is positioned well to execute this sort of radically needed change in one area in which common ground might be found.

Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].