New Report: Beyond Bailout Federalism

NEW YORK, NY – Covid-19 led Congress to provide over $1 trillion in aid to state and local governments, among fears that tax revenues were about to collapse and Medicaid and Unemployment Insurance costs set to soar. Similar bailouts of these programs featured in every other recent recession. In a new Manhattan Institute report, senior fellow Chris Pope argues that joint state-federal entitlement programs are unstable, unfair, ineffective, and ripe for restructuring. 

Pope’s tour-de-force analysis of the American welfare state reveals that states systematically shift entitlement costs to the federal government, coyly using the extra revenue to ameliorate their own fiscal situations. State financial sleight of hand have been a feature of the welfare system since the New Deal, inflating costs and limiting assistance to the needy, while increasing state budgetary vulnerability.

To solve this systemic problem, Pope argues that the federal government should assume full operational, administrative, and financial responsibility for entitlements which depend on federal funds, including:

• Medicaid and CHIP: Federalize financing and administration of essential benefits for mandatory enrollees. States should bear full responsibility for any additional benefits.

• Unemployment Insurance: Federalize all aspects of financing and administration.

• SNAP (Food Stamps): Eliminate broad-based categorical eligibility, and determine eligibility entirely at the federal level.

• SSI/Disability Insurance: Federalize eligibility determination.

• Health Insurance Exchange: Allow purchase of health insurance from other states.

Pope argues that the benefits would be manifold: more efficiently helping those in need, limiting taxes to those with the greatest ability to pay, giving vulnerable workers greater freedom of movement, and streamlining eligibility determinations.

Read the Full Report Here.