Should a future recession necessitate another round of state-welfare bailouts, the federal government should nationalize currently split entitlement programs.
America’s state governments are currently flush with funds and expanding their spending commitments. Congress had provided over $1 trillion in pandemic aid to state governments, fearing that Covid-19 would cause their revenues to collapse and entitlement costs to surge. Yet, state Medicaid spending actually fell as Americans sought fewer elective procedures, while their own-source real tax revenues increased 12 percent on pre-pandemic levels.
This dynamic — of states overextending themselves in healthy fiscal times and then relying on national bailouts when the business cycle takes a downturn — has become characteristic of modern American federalism. Funds are poorly targeted to help those who most need assistance, and destined to fall short during recessions.
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