Federalism Update

Atrios jokingly endorses my tentative federalism idea:

“Tax Fairness Act of 2005.” This Act would mandate that, within some reasonable margin of error, your state should get as much back from the feds as is sent to them in taxes. It’s time to end this kind of geographic welfare!

He also has a list, based on taxfoundation.org data, of the deadbeat states, itemized by Red/Blue status. In fairness, Atrios also writes that

…Look folks, for the record this is a “stupid” idea and not one which either should or will pass. The purpose of it is to:

*Get into the public dialogue the fact that the anti-guvmint Bush-voting states to a great degree prosper to whatever extent they do because of an infusion of money from Kerry-voting states.

As I said, it’s something I’m still thinking about and I mostly find it appealing because I’ve only thought about the benefits, not the costs. Inter-state cooperation clearly has strong benefits, and reaping them almost by definition requires coordinated action by the federal government. In fact, I believe we first learned that lesson back when the founders did away with the Articles of Confederation and replaced them with the Constitution.

That said, one of the real costs of the transfer of money from Blue states to Red is that the residents of Red states are partly insulated from the consequences of really bad economic policy, freeing them to base their votes on other dimensions like ‘gay people are icky.’ The reddest Red states are relatively poor now, but they are apparently not sufficiently relatively poor to vote with their pocketbooks — yet.

If this continues, I question whether we can ever return to a point where we have semi-rational policy formulation based on some sort of comparisons of costs and benefits. And I question whether we’ll be able to stop saddling our children with additional mounds of debt. So, it may be a bad idea, but it may nevertheless be the contrained optimum.


UPDATE: Responding to the first comment asking how this could be done, the answer is clearly not to pass Atrios’ jokingly proposed act. But there are lots of measures that could reduce the transfers at the margins. One is to expand the dividend tax cuts. Another is to cut the capital gains tax. A third is to replace non-federally deductible forms of taxation with deductible ones, like property taxes and state income taxes (though a previous commenter said the last tax bill made consumption taxes deductible, too). States can change their own tax codes without approval from the Republican controlled federal government.

The two common features of all these are that they are Republican ideas and that they are regressive. The Blue states would need to be clever in restoring progressivity via their internal tax systems. So to some extent, it is in fact feasible, at least until the Red staters’ catch on. Were I still angry, I’d say that the Red states could be easily distracted by more gay marriage proposals and “under God” controversies while the Blue states push through such measures.

Of course, “could” does not imply “should” (see Iraq, Invasion of).

UPDATE: See also Daniel Gross in Slate.