THERE AIN’T NO SUCH THING AS A FREE FEDERAL DOLLAR

Michael Kurth Friday, February 7, 2014 0
THERE AIN’T NO SUCH THING AS A FREE FEDERAL DOLLAR

Over the last half-century, the role of the federal government has greatly expanded. Washington is now deeply involved in elementary and secondary education, healthcare, housing, employment practices, the media, how we use our land and other natural resources, personal relationships and speech, and even what we eat and smoke. You name it, and there are federal regulations that govern it. But it wasn’t always this way.

When the founding fathers wrote the Constitution, they sought to limit the power of the central government by limiting it to only certain functions. These were enumerated in Article 1, Section 8 of the Constitution, and included such activity as levying and collecting taxes, borrowing money and paying the nation’s debts, regulating interstate commerce, minting (not printing) money, providing postal service, protecting patents and copyrights, establishing federal courts below the Supreme Court, declaring war, and raising and supporting an Army and Navy for national defense. All powers not specifically granted to the federal government were reserved for the states.  FREEMONEY

The relationship between the federal and state governments specified in the Constitution was not a subordinate one, where the federal government sits atop the power pyramid with state and local governments arrayed beneath it, but a parallel or coordinate relationship where the federal government has its specified responsibilities, the states have their responsibilities, and one does not trump the other.

How did this change? Over the 225 years since the Constitution was adopted, the Supreme Court has tended to interpret the enumerated powers of the federal government broadly, which has resulted in a modest expansion of federal power. But the real shift in power has come about through federal grants-in-aid known as intergovernmental transfers.

Prior to passage of the 16th Amendment in 1913 establishing the federal income tax, the federal government obtained its revenue primarily from tariffs imposed on imported goods and excise taxes on specific goods, such as alcohol. But rather than being poor and having to borrow money constantly, the federal government was generally awash in revenue, except during times of war. In fact, some historians have suggested that the U.S. went to war with Mexico in 1846 just to use up some of its excess revenue. It wasn’t that the federal government had so much money; it was that the federal government had so few things it was allowed to spend its money on, with war being one of them.

During this period, the federal government tried, on a number of occasions, to give some of its excess revenue to the states, but the Supreme Court blocked these efforts, saying that the power to give implied the power to withhold, and this would give Washington undue leverage over the states. The sole exception was the Morrill Act of 1862, which allowed federal land to be transferred to the states to establish colleges for agriculture and science.

The first major shift in the coordinate relationship between the federal and state governments came during the Great Depression, when Franklin Roosevelt packed the Supreme Court to push through his New Deal legislation that relied heavily on federal grants-in-aid to state and local governments. Initially, these grants came with few strings attached, but that would change dramatically in the 1960s.

One of the big issues in the 1960 presidential race between Richard Nixon and John F. Kennedy was federal aid to education. Education had previously been the sole domain of the states, but when the Russians successfully launched Sputnik, the world’s first satellite, the argument was made that the only way the U.S. could win the “space race” with Russia was a massive infusion of federal money to promote teaching science to our children (the reality was a bit different: it wasn’t that Russian schools were better than ours; the Russians had simply captured more German rocket scientists at the end of Word War II and put them to work in their military program).

Removing the fetters on federal largesse and allowing Washington to fund local schools fundamentally changed the nature of federalism in the United States. By the time of Lyndon Johnson’s presidency (1963-1969), a new kind of federalism was emerging; what some scholars call “centralized federalism,” with ever-increasing conditions or strings attached to federal money, forcing state and local governments to implement a particular national policy in order to obtain or retain their funding.

Today, the federal government must still be invited by the states to get involved beyond the powers enumerated in the Constitution. The way Washington obtains these invites is by dangling millions, even billions, of dollars in front of state governments, but always with strings attached: “We will give you this money, if you want it, but you must do x, y and z if you take it.”

Once, it could be argued that the states, when seeking grants from the federal government, were simply trying to get back the money their residents had paid in income taxes. But today, that money is more likely to be borrowed from China or other foreign countries. So the more money the states take, the more power they surrender to Washington, and the more indebted Washington becomes to foreign interests.

Economists have a saying: “There ain’t no such thing as a free lunch,” sometimes abbreviated to simply TANSTAAFL. Perhaps it should be TANSTAAFFD — “There ain’t no such thing as a free federal dollar.”