Posted on 12/20/2014 11:31:19 AM PST by Kaslin
Im a big fan of federalism for both policy and political reasons.
Returning programs to the states is the best way of dealing with counterproductive income-redistribution policies such as welfare, Medicaid, and food stamps.
Federalism is also the right way of unwinding bad education schemes likeObamas Common Core and Bushs No Bureaucrat Left Behind.
And the same principle applies fortransportation, natural disasters, and social issues such as drugs.
And I cant resist pointing out, for the benefit of those who think such things matter, that federalism is also the system that is consistent with ourConstitutions restrictions on central government power.
Simply stated, federalism is good news because we get innovation, diversity, and experimentation. States that make wise choices will be role models for their peers. And its also worth noting that states that screw up will provide valuable lessons as well.
But sometimes a real-world example is the most compelling evidence of all. And the news that Vermont has cancelled its proposed single-payer healthcare scheme (aspredicted by Megan McArdle) shows us why federalism is such a good concept.
Lets start by reviewing whats happened. Here are some excerpts from a reportpublished by the Daily Caller.
Vermont Gov. Peter Shumlin is canceling his dream plan to create a single-payer health system in the state, he announced Wednesday. …In my judgment, now is not the right time to ask our legislature to take the step of passing a financing plan for Green Mountain Care. The problem is, of course, how to pay for it. Even while plans were moving forward for a 2017 launch of the single-payer system, to be called Green Mountain Care, Shumlin had held off on releasing a plan for how to pay for the system, waiting until his announcement Wednesday.
So why didnt Shumlin simply call for a big tax hike? Or look for more handouts from Washington? Or what about those fanciful assumptions that socialist health care would be more efficient?
Well, that basically was the plan.
Tax hikes required to pay for the system would include a 11.5 percent payroll tax as well as an additional income tax ranging all the way up to 9.5 percent. Shumlin admitted that in the current climate, such a precipitous hike would be disastrous for Vermonts economy. …the report also admits that the single-payer system wont save money as Vermont officials had planned. While both previous reports on Green Mountain Care had assumed hundreds of millions of dollars in savings in the very first year of operation, Shumlins office is now admitting thats not practical to achieve. …Shumlin also cited slow economic recovery in Vermont as reason to delay, and hopes to try again in the future. But its failure, especially on economic grounds, is a resounding defeat for single-payer advocates.
Yes, this is a resounding defeat for socialized health care.
But its important to understand why Shumlins plan collapsed. He and other politicians obviously figured out (notwithstanding their claims when running for office) that a huge tax hike, combined with free healthcare, was a recipe for state disaster.
Productive people and businesses would have emigrated, while freeloaders and scroungers would have immigrated. The state would have gone into a downward spiral.
So even though Shumlin is a hard-core leftist, and even though Vermonts electorate is so statist that the state came in first place in the Moocher Index, all these advocates of socialized healthcare were forced to recognize real-world constraints imposed by the existence of other states.
So the productive people of Vermont (at least the ones that havent already escaped) should be very thankful for federalism. Competition among the states, as well as freedom of movement between states, is a wonderful check on the greed and foolishness of the political class.
The crowd in Washington, by contrast, has more flexibility to impose bad policy since moving from one country to another is far bigger step than simply moving from, say, California to Texas.
Nonetheless, this also explains why I like tax competition among nations. I want greedy politicians to be haunted to at least some degree by the fear of tax flight so that they will think twice before imposing new burdens. But thats a subject weve reviewed on many occasions, so no need for further details.
The bottom line is that Vermont did face real-world competitive pressure. And that meant the states politicians didnt think they could successfully raise enough money to finance socialist healthcare.
This reminds me of this famous Margaret Thatcher quote about other peoples money.
Margaret Thatcher on socialism
Im disappointed that I couldnt find a clip of her actually making that statement. But if you want to see the Iron Lady in action, you can click here or here.
Lets conclude by noting that the nation with the most decentralization and federalism is Switzerland, and that country does very well notwithstanding having different languages and cultures.
Which helps to explain why federalism is a very practical solution to the ethnic division in Ukraine.
P.S. Even though the focus of todays column is federalism rather than policy, I cant resist pointing out that the single-payer system in the United Kingdom generates some truly horrifying results.
P.P.S. If socialized healthcare is so wonderful, then why do politicians from countries which have that system travel to the United States for treatment?
P.P.P.S. Shifting to another topic, Ive written before that left wingers criticize tax havens, yet it seems every rich leftist utilizes low-tax jurisdictions. Well, Business Week reports that corporate inversions also were created by a leftist.
John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. …The first corporate inversion, as Carrolls maneuver came to be known, was obscure then and is all but forgotten now. Yet at least 45 companies have followed the lead of Carrolls client…and shifted their legal addresses to low-tax foreign nations. …A committed liberal, he…once considered leaving the practice to work for antiwar candidate George McGoverns 1972 presidential campaign. …McDermotts chief financial officer at the time, says he sometimes puzzled over Carrolls motivations. It was always an enigma to me, Lynott says. We knew this guy was a Democrat, and yet he would take on the government in a New York minute over a tax issue. There was nothing liberal about his thinking as far as the tax code was concerned. …The IRS fought the case for seven years, giving up in 1989 only after a federal appeals court upheld a U.S Tax Court decision in the companys favor.
So I like what Mr. Carroll achieved, but I guess we have to say he was a hypocrite. But, then again, statists specialize in hypocrisy.
P.P.P.P.S. I cant resist sharing one more unrelated item. The 2008 crisis presumably showed the downsides of too much debt.
Well, time for a quiz: Who do you think has responded most intelligently and least intelligently to the lessons from that crisis?
Your choices are households, financial institutions, corporations, and governments.
I imagine nobody will be surprised by this chart from the BBC.
So what lessons can we draw from the chart?
Well, politicians in developed nations have been raising taxes over and over again, so perhaps we should conclude that higher taxes simply lead to more debt because our leaders cant resist spending other peoples money.
And thats precisely the point. Experts such as Steve Hanke, Brian Wesbury,Constantin Gurdgiev, Fredrik Erixon, and Leonid Bershidsky have all pointed out the ever-increasing burden of government in Europe.
Higher taxes are only a solution if the goal is bigger government and more red ink.
Vive la difference!
Variety in law and culture gives Americans more freedom of choice.
May the best states win!
(This may be the only logical argument for diversity I’ve ever heard.)
;-)
Yes but it is getting to be like arguing the best butter is that which you have churned yourself. Or, it is better to walk to work than to drive. Federalism lost a long time ago. All that is left is an argument of convenience to stall until the federal judges can swipe it away.
Travel, communication, technology have changed the whole dynamic. It isn’t likely to turn back around unless some attack on our infrastructure sends us back into the 18th century. That will make it much harder for federal judges to rule an entire country from the bench.
That’s not to say I disagree with the principle (for the most part). It is just to say we had better see what is really going on and fight where the battle is.
In practical terms a few objectives need to be met.
1) All funding payments to the states need to be in the form of block grants. And block grants must be “clean”, not including unrelated regulation, unless the federal government pays for it. That is, no unfunded mandates.
2) All direct connections between the people and the federal government need to be severed. That is, before the Income Tax, people were citizens of their states, and had no direct connection to the federal government outside of the census and the Post Office. Everything else, even the military draft, went through the states. A buffer protecting the people.
3) The most anti-federalist person in government is the POTUS. So the office of the POTUS must be stripped of any power that has been used to directly oppress the states. And generally brought back to constitutional standards in other ways.
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