The Mercatus Center at George Mason University recently released two new policy briefs focusing on why fiscal federalism — the ability of states to operate budgets independent of the federal government — matters for American democracy, and offering suggestions on how states can begin to climb out of their fiscal holes.
In The Death of Fiscal Federalism, Veronique de Rugy and Stefanie Haeffele-Balch look at the historical division between federal and state budgets and argue that lawmakers need to revive federalism by transferring many programs back to the states. States are, they say, in a better position than the federal government to determine their needs when it comes to roads or schools.
They suggest that the federal government should dramatically cut aid to the state governments and eventually abolish the national income tax and cease giving grants to state and local governments.
Fortunately, there are some things that the states can do today. In Seven Key Aspects of Governing During Crisis, Maurice McTigue and Daniel M. Rothschild present a toolkit of seven ideas and procedures for state policy makers to evaluate budget shortfalls and find opportunities for reform. Drawing on domestic and international experiences, they suggest that the current gap between revenues and expenditures presents policy makers with an opportunity to reevaluate the functions and business practices of their state governments, not only to survive the current economic downturn, but in order to thrive in its aftermath.
They argue that policy makers should shift their focus from addressing symptoms— the disparity between revenues and expenditures—to ameliorating underlying problems and seek permanent solutions that will encourage economic growth and bear dividends today and into the future, making their states more economically competitive, employment-rich, and better able to weather future fiscal storms.
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Daniel Rothschild is with the Mercatus Center