Second, there WOULD be federal taxation, but it would be derived, or "billed" as it were, to the states. How to divvy those taxes up equitably between the states is a matter for a separate discussion.
Finally, I agree wholeheartedly with your desire for a return to Federalism and its incumbent state's powers. My very grave concern is that it is virtually impossible with nearly half the population supporting a diametrically opposite viewpoint of the role of government. In several generations, education MIGHT be able to counter some of this thinking, but when the other side controls education, how is one to even start making those inroads...before time runs out.
Some of the practical concerns about transitioning from the Eurosocialistweenie Road to Serfdom that we are on now to federalism lies in that this would also — very important, within new financial constraints — gives states freedom to continue to pursue or even expand statist policies.
IOW, there would be enclaves where people who support that form of government could go to be under statist State governments.
(Of course, until the money ran out. Shhhh!)
Another thought on your fine post.
We were talking elsewhere upthread about Bush's proposed model for transistioning out of Social Security. Basically, treating some people as vested and allowing those who were not vested to opt out. In the federalism scenario, you should be able to have many different ideas come to the fore about how or whether to do a "social security" type entitlement.
But what do you think? It seems to me that simply closing new enrollment to these programs (however you get there, see above) is the best education of all! The only reason people depend on these programs and plan their lives around them is because they exist (and earners are forced to fund them).
In the "return to federalism" scenario, only the Red states would tend toward accepting fewer state services in exchange for less taxation. And only the Red states would even consider returning to a system of individual responsibility, with a reliance on private (targeted, accountable and local) charity to provide a community-based safety net. (I would truly love to be able to better exercise my God-given obligations to help my fellow man by not having my charitable giving forced by and outsourced to the government.)
Those who didn't like that would stay in statist states or move there. Then they could figure out what to do next when the state's monies ran out. If the state could keep going because it had a lot of very wealthy people willing to fund statist policies, okay.
But I do think you can accomplish this without having the need for people who love socialism to understand or agree that socialism presents problems. They just get educamated by TOUGH LOVE, the Thatcher reality that you eventually run out of other people's money, if that comes about.