The New New Federalism

March 30, 2013

BY: Andrew Evans

New policy group advocating for decentralizing power, greater state autonomy

(Washington Free Beacon) - Removing power from Washington, D.C., and fostering competition between the states would cut costs and help the country to determine which policies are the most successful, according to a new report.

The report by the Liberty Foundation of Oklahoma, a new grassroots organizing group, says the country should return to “competitive federalism,” in which the states are free to implement policies without federal influence.

With federal influence removed, the states would be free to compete for the best policies.

The group is now advocating for those ideas on a state-by-state basis, seeking to activate a network of center-right free-market organizations, said Michael Carnuccio, president of the Liberty Foundation.

“We’ve tried the centralization of power in the federal government for the last eighty years. It hasn’t worked,” the report says.

Thirty state-based think tanks from 29 states endorsed the report and 17 states have signed up with the Liberty Foundation to hear its proposals, said Matt Mayer, president of Opportunity Ohio and the report’s author.

While there have been clusters of activity in support of federalism over the years, there has been “nothing this comprehensive,” said Mayer.

The report says the federal government should stop spending on education, transportation, and Medicaid and use the savings to cut taxes. It says the states will be forced to raise taxes on their citizens to compensate, but the overall tax burden will not rise on individuals.

The states could tax less than the federal government currently does, the report argues, because they will not have to pay for the federal bureaucracy that funnels money to the states for these programs.

The federal bureaucracy accounts for 15 to 35 percent of the total costs of the programs, according to the report.

The states already administer these areas, the report notes.

By transferring responsibility for these three areas to the states, including the responsibility to fund them, taxpayers would get more value for their dollars because they would not pay for a federal bureaucracy.

Mike Franc, vice president for government studies at the Heritage Foundation, said federalism and state competition are worthy causes.

“One of the great selling points and strengths of the federalist system is that in certain policy areas you do create a virtuous competition among the states,” Franc said.

There are a number of examples of states competing against each other, he said, citing Pennsylvania’s allowing fracking and New York’s prohibiting it as well as Indiana advertising its favorable business policies in unfriendly Chicago.

The Illinois Policy Institute (IPI), one of the groups that endorsed the foundation’s report, pointed to its home state as an example of the value of true federalism.

The Medicaid system in Illinois is out of money, said Kristina Rasmussen, IPI executive vice president. The federal government is dangling more money before the state in order to expand the system despite the system’s financial woes, she said.

“You see the federal government coercing and forcing decisions that if they stayed out of it, then the state would come to the decision that this is an awful decision,” Rasmussen said.

She noted that Illinois is surrounded by states with good policies, and Illinois is facing a declining population unless it gets its house in order.

“Competitive federalism is a great influence on states to get their act together,” she said.

It could also force states to be wiser stewards of taxpayer money, said Bob Sanchez, policy director at the James Madison Institute in Florida, which also endorsed the report.

Competition “could foster a healthy form of competition between and among the various states as they try to deliver public services more efficiently, with due respect for the taxpayers’ dollars,” he said.

Franc said the project would likely face stiff resistance from the “enormous array of vested interests” in the current system.

“This is a real threat to all the people we love to hate,” he said. Seven of the 10 wealthiest counties in the country are in the Washington, D.C., area, and the three program areas targeted in the report are three of most lobbied areas of the government, Franc said.

Franc also noted another problem facing competitive federalism: federal debt.

Forty percent of the federal government’s expenditures are financed with debt, Franc said, while most states have a balanced-budget amendment. This discrepancy would force states to perform the same services with 60 percent of the money.

Franc praised the Liberty Foundation’s work: “They’re tackling exactly the right problem.”

The Departments of Transportation and Education and the Center for Medicare and Medicaid Services did not return requests for comment.