The Murder of Federalism 
By John McClaughry

The Congress was determined to shower Federal money upon the states. Only one man stood in its way. He was the President of the United States. His name was Andrew Jackson, and he was a Democrat

In Jackson's day a major source of Federal revenue came from the sale of public lands, ceded to the federal government by the original states at the time the Constitution took effect. The Western states in which those public lands lay wanted to receive and sell those lands to finance their state governments. The Eastern states that had no Federal lands wanted the Federal government to sell the lands and distribute the proceeds to all the states.

A prominent argument for this latter policy, known as Distribution, was that allowing money from land sales to accumulate in the Federal Treasury was dangerous, for it would tempt Congress to spend it for extra-constitutional projects. Better the money should be distributed among the states, to let their governments fund highways and schools, or to reduce tax burdens on their own taxpayers.

The champion of Distribution, Whig Senator Henry Clay, pushed a bill through both houses of Congress. In December 1833 President Jackson returned it with a withering veto message.

Of Clay's scheme, Jackson wrote, "it appears to me that a more direct road to consolidation cannot be devised. Money is power, and in that government which pays the public officers of the states will all political power be substantially concentrated. The state governments, if governments they might be called, would lose all their independence and dignity. The economy which now distinguishes them would be converted into a profusion, limited only by the extent of its supply."

"Being the dependents of the general government, and looking to its treasury as the source of all their emoluments, the state officers would, in effect, be the mere stipendiaries and instruments of the central power."

Now, 176 years later, another Democratic President, urged on by an enthusiastic Democratic Congress, has revived Distribution in the guise of Stimulus. A major difference is that in Jackson's day the national debt was reduced to zero, and the question was what to do with surplus revenues. Today the national debt is astronomical, and the question is how fast the government can borrow - or print - money to increase it by yet more trillions.

One modern descendant of Andrew Jackson is South Carolina Gov. Mark Sanford. (Sanford is a Republican; the Democrats have long since repudiated the limited government, hard money principles of their party's founder.)

Faced with the Stimulus bill, Gov. Sanford wrote to President Obama, asking for a waiver to use $700 million of $2.8 billion assigned to South Carolina to reduce the state's bonded debt.

Gov. Sanford explained to the President that spending all of the Stimulus funds would in two years create a $1.2 billion hole in the state's budget, when the Stimulus provisions terminate. "Unless your intention is to borrow more money that we don't have to send to states like ours in 24 months, I don't know how we would dig out of this hole without substantially raising taxes and in turn making our economy less competitive in producing jobs."

Even before the Obama White House rejected Gov. Sanford's request, on the grounds that the bill does not give the President waiver authority, the Democratic National Committee launched anti-Sanford media attack ads in South Carolina.

The Stimulus bill, its effects sharply illustrated by Gov. Sanford's letter, opens possibly the final chapter in the long-running demise of federalism.

Forty years ago, the federal government offered states money to do what the Federal government wanted done; states could decline, and thus got no money.

Then, with the 55-mph speed limit and increased drinking age laws, Congress informed the states that unless they did Congress's bidding, not only would they not get the money, but they would lose other money already granted ("crossover sanctions").

Now Congress is telling the states that they must take the money, and they must use it as Congress directs, regardless of effects on state budgeting, taxation and responsibilities. For instance, the Stimulus bill reverses the landmark welfare reform legislation of 1996 by rewarding states for adding people to the welfare rolls, instead of helping them find gainful employment.

To the extent that Stimulus funds pay for infrastructure improvements, broadband deployment, debt reduction and other one-time projects, the states can benefit (at the expense of future generations). But to the extent the act changes entitlements and creates expectations of subsidies that are not likely to continue beyond 2011, the venerable American principle of federalism will enter its terminal decline.

That this was done by a wholly irresponsible Congress, voting through a 1,434 page bill almost overnight, makes the murder of federalism even more deplorable.
 

John McClaughry is President of the Ethan Allen Institute