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The Path Back to Federalism


The Path Back to Federalism

 The Constitution calls for a few well-defined government functions at the federal level and the rest left up to the states and the people. It warms my heart to hear politicians who truly understand and appreciate this more-democratic-than-what we-now-have arrangement. Alas, most politicians reject the idea, and I fear most voters do as well. It thus behooves us to study why this massive rejection of ideas that were once ratified by all the states. Determine what changed, and we can possibly produce a modified constitutional arrangement which is acceptable today while restoring what was good about the original arrangement.

(If Ron Paul or Gary Johnson wins the presidency this time around, and a flood of Campaign for Liberty members takes over Congress, then you can safely ignore this article. If, on the other hand, we only get a subset of this happy scenario, we need concern ourselves as to our bargaining position with the other factions.)

The original Constitution was explicitly rejected during the Progressive Era. During that time we had a flood of amendments, including one for an income tax, along with the Federal Reserve and the beginnings of the modern environmental movement.  At first, the ideal of constitutionalism was preserved – many of the changes were enacted as constitutional amendments – but by the time of the second Roosevelt, the changes came so rapidly that our beloved Constitution became a “living” (read undead) document.

It is tempting to blame elitist conspiracies, the influx of Continental philosophy or international bankers for the changes. But dwell too much on these issues and you lose political credibility, and lose track of the real point. America rejected its original Constitution during the Progressive Era for one simple reason: the frontier closed.

When our country was founded, the federal government owned vast tracks of wilderness to sell to pioneers, and Thomas Jefferson soon bought vastly more at a fire sale price. This provided significant federal revenue. We had less need for efficient taxes at the federal level.

The frontier also provided a vital social safety valve. Lower class workers discontent with their lot could simply head west – instead of joining labor unions. Hideous working conditions in factories stayed off the political radar and few considered the arrangement permanent.

The frontier also meant nature was plentiful, so plentiful that few saw much need for environmental preservation. (Though even in the beginning some restrictions on excessive hunting would have been useful. We lost quite a few species during the 1700s.)

Finally, the frontier provided some check on the super rich. With land plentiful, opportunities for rent-seeking were reduced. Meanwhile, limits on economies of scale provided some limitations on industrialist fortunes. The primary rent-seekers were Southern slave owners, but in the South the bulk of the working poor were not allowed to vote.

When the frontier closed, discontent exploded. Union agitation exploded. Populist politicians roamed the land. Even the elites realized we had a problem and so became Progressives. The Constitution was modified, mutated, and then emasculated. The modern centralized welfare state was born.

Our original republic was designed for a largely empty land. As our land fills up, the arrangement is ever more strained. For this reason I side with Ron Paul and the paleos over Gary Johnson and the Libertarian Party on the immigration question. We cannot enjoy certain liberties without some elbow room. But we must also recognize that we have already lost a great deal of elbow room. The underlying problems that begat the Progressive Era have not gone away. I am thus pessimistic that we can simply go back to the Old Republic. We might have better luck going forward instead.

For example, with 300 million people we do need some environmental protection at the federal level. Coal burned in Tennessee affects North Carolina air. The bigger air pollution sources are thus a federal issue. Endangered species cross state lines as well. These issues must be addressed. We need not accept the current system of overly complicated regulations and lost property rights, but we do need to provide a realistic counter-offer: externality taxes vs. quotas on bulk pollutants, accountability over regulation when feasible, full compensation including damages when property is restricted for environmental preservation, subsidies for preservation vs. development prohibition where possible.

We must also come to grips with the ever-widening wealth gap that comes with the greater economies of scale and greater opportunities for rent-seeking in the modern era. In other words, the common Republican calls for a flat tax at the federal level are inconsistent with a return to federalism.

With modern mobility and economies of scale, it is hard to tax the rich at the state level. This is why most taxation is now done at the federal level. And with the power to tax comes the power to decide how the money is spent. Ronald Reagan attempted to restore federalism by turning federal welfare programs into block grants. It didn’t work. As long as the block grants were for a federally defined purpose, Congress had too much fun fleshing out the definitions of each respective purpose.

A block grant system apportioned by state population only might work. But it still encourages power at the state level, when some powers could go all the way back to the local level or The People.

The other path to restore federalism is to make the federal tax system more progressive. Cut taxes, yes, but from the bottom. Let the states and localities fund themselves from flat and/or regressive taxes. The overall tax system thus becomes flat. This is not a soak the rich proposition.

We have some precedent: the 1950s. Under Eisenhower the federal income tax rate was considerably more progressive than today. Federal welfare programs were less; the Great Society had yet to be implemented. The middle class prospered and we had a brief balanced budget – all at a time when the Cold War was at its height. Even liberals are beginning to long for the 1950s.

But we had progressive federal taxes in the 1950s because we had a graduated income tax. Ugh! And by no means do I endorse the top marginal tax rates of the day.

How do we have progressive taxes at the federal level using only tariffs and excises? One solution is to have a universal rebate, unconditional free money from the federal government for all adult citizens. Make the rebate large enough and the remaining welfare needs are manageable at the state level funded by state taxes. Private charity might even suffice.  We could shut down the federal welfare state and have liberals like it.

And if we don’t have that overwhelming landslide victory, we are going to need some liberal politicians to like what we offer. Conversely, we will need some liberal votes if we want to achieve that landslide. So, some of you reading this essay may want to consider these proposals as part of getting elected.


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