In practice, federalism has become largely a way of bilking U.S. taxpayers
Over the past few months, states and cities have been competing for the privilege of hosting Amazon’s second headquarters. To this end, Maryland has pledged a “blank check” in transportation spending tailored to the company’s needs, New Jersey has enacted bipartisan legislation to provide Amazon $7 billion in tax credits, and Chicago is proposing to give the company $1.32 billion in personal income taxes paid by its workers. But residents of those localities concerned about a “winner’s curse” shouldn’t worry — taxing and spending by state governments is now heavily subsidized by federal taxpayers.
This practice of cost shifting has produced a dynamic characteristic of modern American federalism: an intensifying competition between states to shift costs to federal taxpayers. The major responsibilities of state governments (education, Medicaid, transportation, social services) involve opportunities to claim federal funds, and so the art of state government has largely become an effort to find increasingly creative ways of expanding expenditures by making such claims.
In theory, federalism is a pillar of conservatism, but in practice, conservatives find themselves increasingly preoccupied by the need to reform a system of state–federal relations that has become structured to eliminate fiscal responsibility. The capping of the State and Local Tax (SALT) deduction was one of the most controversial elements of the tax-reform legislation passed at the end of last year, and the inability to reform Medicaid’s open-ended system of matching funds doomed the attempt to repeal and replace the Affordable Care Act. This year, immigration enforcement has been stymied by “sanctuary cities,” while the Environmental Protection Agency has found its efforts constantly undermined by the State of California.