Wednesday, September 27, 2017

Cynical Federalism: Some Thoughts on President Trump's Tax Proposal

The Republican Party ostensibly consists of today’s Jeffersonians. Empowering the states over the federal government is an ongoing theme with them. Thus the Graham-Cassidy healthcare bill featured block grants to the states which would devise their own health plans.

It is true that an emphasis on state power often appears to be a smokescreen for other agendas. During the civil rights era, southern states used “states’ rights” as a slogan to counter federal efforts against segregation. And those who say they oppose federal safety net programs on federalism grounds often turn out to oppose safety net programs on the state level as well.

But it must be conceded that the Constitution does not give the federal government plenary power, and that the “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” [1] There truly are limits to federal power, even if they are often invoked cynically.

With that acknowledgement, it must be pointed out that, for many, federal tax cuts are not ends in themselves but the means by which federal power is diminished. Thus Grover Norquist infamously said, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” [2]

That should be kept in mind as we consider President Trump’s tax proposal, a proposal that will drop the top personal tax rate from 39.6 percent to 35 percent [3], lower the top corporate tax rate to 20 percent from 35 percent, and likely exacerbate the national debt. [4] We will likely be missing the point if we argue that revenues are already insufficient to fund government operations, because that is precisely the goal: drowning the government in the bathtub. In saner times such ambitions would have been deemed unpatriotic.

Of course, we can anticipate arguments that many of the things being handled by the federal government today should properly be handled on the state level, and that we shouldn’t be funding such things on the federal level at all. Federal funding of welfare programs is often pointed to as something that should be completely taken over by the states.

Now to evaluate the sincerity of such an argument, should it be made in defense of Mr. Trump’s tax proposal, we should consider what would be an effective method for the federal government to encourage states to take up the burden. One very good approach would be for the federal government to allow a tax deduction for taxes paid on the state level. This would incentivize states to develop programs that they could enact without increasing the overall tax burdens on their citizens.

But Mr. Trump’s proposal does exactly the opposite of that. In point of fact, deductions for state and local taxes will be eliminated under the plan. One is left to wonder how serious the Republicans are about states taking over certain federal operations. As we see time and again, they are not simply opposed to federal safety net programs, they are opposed to safety net programs entirely.

Federalism is an idea too often deployed for cynical purposes.