The Right Kind of Federalism

Rich Tucker /

American Legislative Exchange Council

American Legislative Exchange Council

Regular elections are a critical feature of American democracy. If you don’t like the way your town, state, or federal government is headed, you know you’ll have a chance to change leadership at the ballot box.

Of course, if your state is slowing you up with high tax rates and slow growth, there’s no need to wait. Americans are always free to vote with their feet and move from one state to another. And we’re doing so.

“The nine states without income taxes have grown two-and-a-half times faster than the nine states with the highest personal income taxes,” Jonathan Williams pointed out during a recent forum at The Heritage Foundation. Williams is co-author of the annual report Rich States, Poor States. He adds that “43 million Americans have moved from one state to another in the last 15 years.”

In government, as in retail, competition works. It tends to reduce costs and improve services. So the proper kind of federalism is one that creates competition among the states. By doing so, it empowers people: If one state jacks up taxes, you’re able to take your talents to another state, enriching both the state and the individual. The competition among states helps protect your economic and personal rights.

The proper sort of federalism is easy to find: Just follow the money. Stephen Moore, Rich States, Poor States co-author, points out that people are flocking to states that are cutting tax rates, states that are right-to-work, and states that are taking advantage of their natural resources, mostly through hydraulic fracking for oil and natural gas.

On the other hand, many traditionally liberal states are sticking with their failed approach of heavy-handed government. New York has placed a moratorium on fracking, for example, while California’s legislature is considering blocking the procedure. Moore says these states are attempting to “federalize everything” by getting as much money from Washington as possible and by minimizing competition among states. But that’s the wrong sort of federalism, as it prevents good ideas from bubbling up from the states. In the long run, unless these liberal states are bailed out by Washington, their model looks likely to fail.

Even in the most successful states, such as Texas or Florida, there’s too much federal meddling. States increasingly administer policies and programs designed in Washington, meaning that all too often they’re acting as agents of a national administrative government. Consider Medicaid or Florida’s attempts to enroll as many people as possible on food stamps.

The correct approach is competitive federalism that triggers a competition among states to develop the best policies. “States competing against each other was the Madisonian vision, and it works,” Moore says, pointing out that in recent years California has lost 1 million workers while Texas has added that many.

To improve their economies, Williams advises states to trim budgets, fix pension promises, and reduce taxes. How to accomplish each of those goals is up to state leaders. But the authors’ research indicates that the states that do the best job in those three areas are likeliest to thrive.

Washington could best help by staying out of the way. “The more you cut federal government spending, the better it is for federalism,” Moore concluded. We need to push power down to the states to unleash federalism and generate a race to the top.