Interestingly enough, I'd argue that the EU needs to begin acting more like the Federal US while you're simultaneously arguing the US should act more like the EU... I think the best-case scenario is probably somewhere in the middle for both.
The US Federal government is taxing too much and is "too federal", meanwhile the EU really should increase its taxation and power at the federal (if you could call it that) level.
The numbers in your article are astounding:
"EU countries currently contribute only 0.7% to 0.8% of their gross national income to the EU, while US state citizens currently contribute 26.6% of their income to the federal government (on average)."
Perhaps the best path for both EU member states and US states is something like 5% ?
I agree that there is a good middle ground here—we can learn from both models! As far as the right amount to remit to the federal government, in the US we could even start with where we are now. Even if states remitted up to 20% of their economies to the federal government (about what the US federal government earns now), some states would raise their total tax burden to earn 30% or even 40% of their economies in revenue. The federal government would continue earning what it earns now, but states could potentially earn much more. Over time, as states take on social security and healthcare and the deficit is lessened, the federal remittance could go down.
At least some of this could be pushed to the state leve like healthcare. Military arguably should be at the federal level with maybe more robust state militias, even the EU should increase taxation at the federal level and consolidate more military into a central European defense. Not sure what the number is, but in this hypothetical scenario we're describing it's not as high as it currently is and higher than the Europeans
Fascinating! This isn't the response to Musk's hostile takeover I imagined, but it would certainly be an effective one if implemented. I hope the unraveling is halted before we lose the capacity to try things on this scale. I also hope that state governments that have traditionally conspired against their constituents will be properly accountable to them instead.
One last question. The vast majority of the federal budget is Social Security, Medicare, defense, and interest on the debt. Presumably those would stay federal.
So you would either be looking at a very small slice of federal spending going back to the states, with little change in federal taxes, or else having to sell the elimination of Social Security and Medicare. Which seems extremely unlikely to be popular.
Even if the Federal government's remittance was nearly 20% of every state's economy, (approximately what it earns now) its budget wouldn't be enough to cover all of its expenses. So that part will need to change anyway.
BUT, even if the Federal government's remittance was nearly 20% of every state's economy, some states might tax at 30% or even 40%. So the federal government would still earn roughly what it's currently earning, but some state incomes would increase drastically. This could be an interesting option.
It's worth noting that I do think we need to change how we fund social security. It isn't a sustainable strategy to tax current employees to pay for current retirees' social security. There number of retirees is growing and the workforce is shrinking so the math doesn't work out. Singapore's social security system, however, takes money out of an employee's account and puts it in their own social security account. They get their own accrued money when they retire, which makes much more sense.
The US does not have more retirees than workers, and is not expected to have more retirees than workers in the forseeable future. About 1 in 6 Americans are over 65, and many of those are still working.
The working age population is not shrinking. It’s growing. The US born working population is shrinking, but it’s more than offset by immigration at any level of immigration being discussed. But old people are living longer and while they also work longer, that does eventually reduce the number of workers per retiree.
You could cover the gap by removing the cap on earnings and adjusting the full retirement age, or a variety of other fixes. I am not sure private accounts would fly politically, but that’s another option.
Ahhh sorry, my blanket statement was too blanket!Here’s a more accurate accounting:
In 1960, there were 5.1 workers per beneficiary.
By 2000, it was 3.4 workers per beneficiary.
By 2035, it’s projected to drop to 2.3 workers per beneficiary.
The workforce is shrinking and the beneficiaries are growing because Baby Boomers retiring, we have birth rates and longer life expectancies, and we have slow workforce growth relative to the growing retiree population. The result is that social security is currently projected to run out in 10 years-ish.
There are many ways to solve this including the ones you mentioned, but many OECD countries around the world are struggling to pay for this budget line item so something will have to change!
What is declining is the ratio of workers to the total population, because of, as you stated, boomer retirees, longer lifespans, decreased birthrates.
Social Security doesn’t exactly run out of money in ten or so years - it drops below being able to fully pay benefits unless adjustments are made, meaning it would pay about 75% of promised benefits rather than the full amount.
Agree this is a universal problem. Productivity improvements, such as suggested by increased use of AI, could help, but it’s not a solved problem.
Can you explain more about that? I broke down healthcare expenses in the US for a previous article and came to a different conclusion. Largely that it is private insurers driving up the cost of nearly every line item. If we paid for all healthcare out of pocket it would be about 20% cheaper. I also mapped out Utah's plan to offer universal healthcare for the state, it has an innovative way of replacing Medicare and Medicaid. You can find that one here if you're interested—I'd love to know your thoughts!: https://www.elysian.press/p/states-could-have-universal-healthcare
About 65% of private health insurance enrollees are in self-funded groups, where the business funds the claims and the health insurance company serves as an administrator and does not benefit from claims paid or not paid. They also often administer public insurance like Medicaid.
Ahhh yes, I see what he's saying. It's true, the cost of nearly every healthcare thing we could want to do in the US is higher in the US than elsewhere. BUT, they also do that because they can because it's paid for by insurance. Noah Smith's solution to the problem is still to do what European countries do: Negotiate for lower prices from providers as a country.
They do it because the US is a higher income country, with a shortage of medical personnel, where a GP averages about 270k per year, a specialist doctor about 400k, and a nurse practitioner about 130k. Healthcare is the fastest growing sector of the economy and we still have shortages. Cutting salaries in half is going to hurt a lot of people, many such as RNs not rich, and is not going to help shortages.
The average salary of a doctor in the UK is about 184k equivalent. Overall salaries are around half-ish of ours.
We also pay much more for drugs, which has been used to subsidize drug development. I am agnostic on whether that’s ideal or worth the impact on our own, but it is another factor in our higher level of cost.
The Utah plan is from a group in Utah, not Utah itself, and appears unlikely to pass.
Yes but there are a lot of ways we can solve this. Imagine you are a state and you have autonomy over your states economy. You look at your healthcare landscape and healthcare is too expensive. What do you do? Well one thing you could do is fund a local medical school to entice more students to enter the industry and flood the market. With a larger supply of doctors, each of them will get paid less but we will have more of them and the cost of care will go down. This is just one example of many that could get healthcare costs down, and I think small but rich states would do them if they could. At a federal level the problem is not being solved.
This is essentially my answer to all of your questions. You are bringing up the challenges with our current system: Education, healthcare, social security, and debt are all expensive. What should we do about it?
My question in return is: What would each state do to solve it if they had tax autonomy? And might that be better than the federal government trying to solve it?
Personally I’d rather see 50 labs of democracy all solving the problems in different ways unique to their own communities, so we could learn from those various solutions as we do. Just as EU countries do.
“That difference means Germany can afford free college education, Utah can’t.”
Germany has a much lower percentage of students going to college, and a much higher percentage in non-college vocational training. It also has a much higher percentage of students living at home rather than on-campus, and thus less emphasis on amenities.
Those are the main reasons Germany can afford free college education. They are educating proportionately fewer students, and doing so in a more frugal way. If we want to do that, it does not require tax changes.
Yes, exactly. When the state is paying for schooling, they don't care about on-campus amenities or dorms. Instead, they offer things like vocational training and schooling that is are more efficient and directly educates individuals for the workforce. It is the private funding of education that has made it so expensive and inefficient.
My experience with UVA, a pretty decent state school, is that they care a LOT about on-campus amenities and dorms, apparently because that affects their ranking. A school with the dorms and perks I had at UVA in the eighties, which were rather Spartan, would plummet in the rankings, because teenagers care about that, a lot.
Basically, every school in the US, public and private, would have to make the same choice, either voluntarily or by limiting financial aid to tuition, fees, and books.
Totally. If a U.S. state wanted to support free vocational training, they would probably start with making community college free and ramping up vocational schooling. I don’t think the private/public universities would change their tack! Again, universities care about those things because parents and students do. The state cares more about providing vocational training and helping everyone have the skills they need to get a good job after school.
"To allow the states to tax, we need to repeal the sixteenth amendment." Don't you mean, to prevent the national government from taxing?
Currently, taxing takes place at every level, but the Federal government just has a greater capacity to tax somehow. But it's probably due to the complaint you mentioned: free movement of businesses and capital--no state can even levy much tax without risking capital and business exodus.
The same problem applies to workers. A state taxes higher--fine, it also spends more and attracts businesses that want to hire more workers. But this leads to greater unemployment because the incoming workers displace the local labor force. Why? Because of free movement of people.
Extrapolating this back over to capital and business again: State A raises taxes and increases spending on the commonweal, making said state more attractive for business. Or it cuts spending and services such as education that are producing diminishing returns, making the state lean and attractive to business. This creates... unemployment of businesses and capital competing for the same pie. I give you that more likely than crowding out, crowding in will occur, but we want to cover the risks.
Then, without putting up tariff barriers between the states, we are still stuck with a national version of globalization: the economic unit still isn't the individual state, but instead is the national corporation, just as now, the economic unit is no longer the nation state but exists only in the international gap between the democratic nation states.
Moving away to another topic:
Where will the extra dollars come from to fund taxation in a thriving, growing set of economies except from deficit, or else, coin, spending at the national level. The money being taxed locally: yes it goes right back into the local economies, but don't we need to provide for growth in the money supply? It is true the banks provide this with their credit creation for loan customers, purchases of corporate bonds and so on. But one would have thought the money the national government adds to the money supply is important. Note that prior to QE, when for a while the Federal Reserve "Bank" was, I think, a bit free, our central bank always issued physical currency by buying bonds issued by *the Treasury*. Aside from this limited hangout, paper cash, the U.S. money supply comes from deficit spending and private bank credit. Cut federal spending, and don't we decrease stability in the system by relying solely on private bank credit? Note, the states taxing and spending "merely" recirculates a fixed quantity of money, which, perhaps, doesn't contribute to growth in the supply of dollars, *assuming* that is important. I say, "assuming," because after all, that is how Treasury auctions work in relation to Federal Reserve account balances, and yet, the non-bank money supply is contributed to thereby: I estimate a fifth to a third of domestic cash (bank account) dollars are created by government deficit spending. So it's not minor. Especially, if we consider it as the more stabile portion of dollars.
Ah, but I just stopped reading in the middle to interject! I will continue. A little bit jealous, because your writing ability is pretty smooth by comparison to my own!
Yes, you're right. Preventing the federal government from taxing.
Why would freedom of movement (which we already have) lead to greater unemployment? When more workers enter a market, more people spend in that market too, so more businesses become successful and hire more people. Despite a never ending influx of workers, Germany's economy has always grown. Locals wouldn't lose jobs to incoming residents, the area would gain jobs overall.
And then if I'm understanding you correctly, I believe you are saying that trade internationally would still happen federally between the US and other countries, then yes I agree with that. The EU can negotiate trade for all of Europe too, even though the smaller entities manage their own economies too.
As for the second topic: The states would still have to fund the federal government with a percent of their economy, just as the EU does. So the federal budget would still exist, it would just be spent on a more refined group of things, again like the EU. It wouldn't make us less stable, just more lean. That remittance would have to cover important things like paying down the deficit.
In other words: It doesn't have to work the way the US does, as we've seen with the EU there are other methods of organization that also work. And we could find a happy medium between what we are doing and what they are doing!
So the (my) proposal to deal with the zero supply of stable (think 2008 financial crash, 1929...) state-issued money growth inherent in your proposal is:
We don't send *any* tax money upwards to the central government, so the whole of the (small) federal government budget is: DEFICIT spending.
----------------
Why? We can't get any growth in STATE (government) MONEY in any other way than deficit spending, defined as spending more than received in taxes.
Why? Because if taxes equal spending, no growth in state (government issued) money has occurred, as we are only spending out of existing money, with no new money creation, as output (fiscal spending) is exactly counterbalanced by input (taxes). A plus and an equal minus equals zero non-credit dollar growth.
What about the infamous "debt"? It's not the debt but the interest rate on it. If we can lower the interest rate low enough, Treasury bonds constitute free money. How to do this? End the Fed, moving any necessary functions back under the Treasury.
1. Because freedom of movement, of people, allows businesses to ignore the local workforce. This would be exacerbated by a good economic environment, whether produced by lean government or ports and bridges, together with attractive public services that draw-in workers from other regions. Or at the least, we have a break-even effect. I mean there’s more aspects, some on the other side, but to simplify.
2. Actually, I didn't mention international trade, except perhaps as example. I mean: interstate trade. It also is devalued by interstate commerce the same way labor is: whatever a local government does to aid it's own locality is diluted by the influx of businesses that take advantage of it, and local businesses suffer also by the new competition, albeit being a short term benefit to consumers until the cross-border economy becomes the new economic unit and monopolization commences only on a larger scale.
3. Yes, but from WHERE does growth in the total quantity of non-credit money come from? Simply reallocating state taxes over to the federal government doesn't change the quantity of dollars, which quantity we need to *grow*! Where do the businesses in an economic boom get the money to pay their state taxes? It's all built on bank credit--how unstable!
By "stable," I am not referring to the *quantity* of spending--let it be as you say--you have all good ideas!--but merely to that part that is in deficit! The deficit is where state money comes from; the rest is bank credit. I estimate the current ratio of domestic state dollars to credit money, just talking about bank account money, is two to five. (International dollars are all credit money, I guess--a hundred thirty trillion?)
As for the Europeans: most ordinary Europeans would argue, I think, that the austerity-based Euro currency concept doesn't work--deficit spending limits as an arbitrarily derived percentage of GDP, which GDP *shrinks* in a bad economy! Although, you make a good case they are in many respects doing a better job of it than we are! I am not here to deny your essay! Sure, it's great! Don't worry. Just to present the other points surrounding the topic.
If I'm understanding you correctly, I see no reason why deficit money shouldn't still be part of the mix at the federal level, especially during economic downturns or to invest in public goods. It's an interesting idea to make that the central use for federal management of the treasury. (Especially over bank loans!)
Or if we really aren't just playing at State sovereignty, which I think we might be, we give them some sort of monetary independence. The era of coins and bills is probably over (or I can't get my head around my replacement idea for that). So:
-- Either we let them issue payments to banks in state tax credits--let the banks state the dollar to state "currency" exchange rate, no problem.
-- Or we leave dollar denomination, but let each state open a payments clearinghouse, a kind of mini-central bank, less all the bank woo, through which state taxes must be paid. Such a clearinghouse could even bypass the banks and allow businesses to make business-to-business payments on it.
If there is sufficient dollar demand in the economy, coming from state taxes and business demand, the Federal government doesn't require ANY taxes in order to spend--the states don't have to literally pass the money on upwards! In theory. We can talk details, of course...
You know, it's not a one-for-one, spending and taxes, or else we would still have the same MQ as in 1792! Not that we actually "need" any money at all, as there are other ways to hit the nail on the head.
Your article became the subject of our dinner conversation tonight. We talked about what different states might do with their newfound taxing authority.
There might first be a partisan rush to finally do what red and blue states have wanted to do for a long time. But I think the national partisanship would cool, and reality would kick in with another wave of proposals. People might begin to think less about what fits their ideology and would begin to think more about what works for them. The people, not the bureaucrats, in one state might work for what another state has implemented irrespective of whether the state was (hopefully) formerly red or blue. It would really act to lower the temperature because people would be more empowered at the state level.
Speaking of red, conservatives should like it. It seems like charter schools writ large. States would have to compete, and theoretically they’d all get better watching 49 other civic laboratories at work. We’d have niche states! Moving vans and Realtors, indeed, would have increased business. So might trains and planes: people might travel more because maybe states would be more like foreign countries—exotic instead of homogenous. Maybe the private sector would follow the states in focusing on local needs. Barnes & Nobles as a trendsetter in this regard! I’m dreaming big here, but maybe regional and even local accents would start to develop again.
The Commerce Clause would need to be revisited, and the Privileges and Immunities Clause would become a hot item again in Constitutional Law.
Your proposal also appeals to a certain states-rights impulse, and that gives me pause. Even a conservative political theorist like Harry Jaffa thinks that the clamor for states’ rights has a still-meaningful connection with slavery. We may have to also beef up the Constitution’s clause guaranteeing a republican government in each state. We’d especially have to make sure that “We the people” doesn’t become “We the states.” Perhaps we’d require constitutional conventions in each state separate from the state legislatures, as we did during the Constitution’s ratification, once a proposed amendment came out of Congress or out of a national convention. Maybe we could balance the proposal in part also by doing away with the Electoral College.
I like the idea of taking power and money away from the federal government, though. We were talking tonight about how much the federal government spends to make as many states as possible happy, and the result is incoherent with little bang for the buck compared to, say, Canada. Earmarks would take a huge hit, happily.
The political crisis in our country is dark, but big thinking like this may have its moment because of it. I certainly hope so. We tend to make big constitutional changes every 90 years or so after a civic crisis (see, e.g., the work on patterns in English and American history by William Strauss and Neil Howe).
This proposal, I think, is in the spirit of the American revolution. Thankfully, I won’t see federalism the same way again.
There are certainly a lot of things we could do alongside an idea like this one (like the ideas you mention), but I wanted to start with taxation because technically a lot of our autonomy could come from that one change alone without changing much else. We would still be the United States, we would still be one country, we would still have the electoral college and all other things (for better or for worse), just the federal government would be operating with less money and the states would be operating with more.
You're right that big ideas tend to happen at moments of key inflection, and we're definitely at one of those now!
I really like this idea. Everyone seems to be demanding more power and authority for the states, and having them operate fiscally as their own countries and enabling them to spend their own tax dollars in the best ways to serve their individual citizens more effectively makes great sense. Each state is different and their citizens want different things. Let’s make it happen!
Interestingly enough, I'd argue that the EU needs to begin acting more like the Federal US while you're simultaneously arguing the US should act more like the EU... I think the best-case scenario is probably somewhere in the middle for both.
The US Federal government is taxing too much and is "too federal", meanwhile the EU really should increase its taxation and power at the federal (if you could call it that) level.
The numbers in your article are astounding:
"EU countries currently contribute only 0.7% to 0.8% of their gross national income to the EU, while US state citizens currently contribute 26.6% of their income to the federal government (on average)."
Perhaps the best path for both EU member states and US states is something like 5% ?
I agree that there is a good middle ground here—we can learn from both models! As far as the right amount to remit to the federal government, in the US we could even start with where we are now. Even if states remitted up to 20% of their economies to the federal government (about what the US federal government earns now), some states would raise their total tax burden to earn 30% or even 40% of their economies in revenue. The federal government would continue earning what it earns now, but states could potentially earn much more. Over time, as states take on social security and healthcare and the deficit is lessened, the federal remittance could go down.
So you would eliminate Social Security, Medicare, national defense, and payment on the national debt? Because 5% isn’t going to cover any of those.
No.... Maybe... Yes... Maybe not...
At least some of this could be pushed to the state leve like healthcare. Military arguably should be at the federal level with maybe more robust state militias, even the EU should increase taxation at the federal level and consolidate more military into a central European defense. Not sure what the number is, but in this hypothetical scenario we're describing it's not as high as it currently is and higher than the Europeans
Fascinating! This isn't the response to Musk's hostile takeover I imagined, but it would certainly be an effective one if implemented. I hope the unraveling is halted before we lose the capacity to try things on this scale. I also hope that state governments that have traditionally conspired against their constituents will be properly accountable to them instead.
There's a lot of hoping going on for sure. But states do have some power to fight back!
One last question. The vast majority of the federal budget is Social Security, Medicare, defense, and interest on the debt. Presumably those would stay federal.
So you would either be looking at a very small slice of federal spending going back to the states, with little change in federal taxes, or else having to sell the elimination of Social Security and Medicare. Which seems extremely unlikely to be popular.
Even if the Federal government's remittance was nearly 20% of every state's economy, (approximately what it earns now) its budget wouldn't be enough to cover all of its expenses. So that part will need to change anyway.
BUT, even if the Federal government's remittance was nearly 20% of every state's economy, some states might tax at 30% or even 40%. So the federal government would still earn roughly what it's currently earning, but some state incomes would increase drastically. This could be an interesting option.
It's worth noting that I do think we need to change how we fund social security. It isn't a sustainable strategy to tax current employees to pay for current retirees' social security. There number of retirees is growing and the workforce is shrinking so the math doesn't work out. Singapore's social security system, however, takes money out of an employee's account and puts it in their own social security account. They get their own accrued money when they retire, which makes much more sense.
The US does not have more retirees than workers, and is not expected to have more retirees than workers in the forseeable future. About 1 in 6 Americans are over 65, and many of those are still working.
The working age population is not shrinking. It’s growing. The US born working population is shrinking, but it’s more than offset by immigration at any level of immigration being discussed. But old people are living longer and while they also work longer, that does eventually reduce the number of workers per retiree.
You could cover the gap by removing the cap on earnings and adjusting the full retirement age, or a variety of other fixes. I am not sure private accounts would fly politically, but that’s another option.
Ahhh sorry, my blanket statement was too blanket!Here’s a more accurate accounting:
In 1960, there were 5.1 workers per beneficiary.
By 2000, it was 3.4 workers per beneficiary.
By 2035, it’s projected to drop to 2.3 workers per beneficiary.
The workforce is shrinking and the beneficiaries are growing because Baby Boomers retiring, we have birth rates and longer life expectancies, and we have slow workforce growth relative to the growing retiree population. The result is that social security is currently projected to run out in 10 years-ish.
There are many ways to solve this including the ones you mentioned, but many OECD countries around the world are struggling to pay for this budget line item so something will have to change!
The workforce isn’t shrinking yet. It literally hit a record level this year. See https://fred.stlouisfed.org/series/LFWA25TTUSM647N
What is declining is the ratio of workers to the total population, because of, as you stated, boomer retirees, longer lifespans, decreased birthrates.
Social Security doesn’t exactly run out of money in ten or so years - it drops below being able to fully pay benefits unless adjustments are made, meaning it would pay about 75% of promised benefits rather than the full amount.
Agree this is a universal problem. Productivity improvements, such as suggested by increased use of AI, could help, but it’s not a solved problem.
“Because we don’t have universal healthcare, we spend double what any other wealthy nation spends on healthcare per person.”
FYI, the largest source of the difference in our spending levels on healthcare is the MUCH higher salaries US healthcare workers get.
To get to the international average, we would have to cut the pay of nurses, lab techs, radiology techs, and doctors down to international averages.
Can you explain more about that? I broke down healthcare expenses in the US for a previous article and came to a different conclusion. Largely that it is private insurers driving up the cost of nearly every line item. If we paid for all healthcare out of pocket it would be about 20% cheaper. I also mapped out Utah's plan to offer universal healthcare for the state, it has an innovative way of replacing Medicare and Medicaid. You can find that one here if you're interested—I'd love to know your thoughts!: https://www.elysian.press/p/states-could-have-universal-healthcare
Noah Smith did an article in December that covers this pretty well. https://www.noahpinion.blog/p/insurance-companies-arent-the-main
About 65% of private health insurance enrollees are in self-funded groups, where the business funds the claims and the health insurance company serves as an administrator and does not benefit from claims paid or not paid. They also often administer public insurance like Medicaid.
Ahhh yes, I see what he's saying. It's true, the cost of nearly every healthcare thing we could want to do in the US is higher in the US than elsewhere. BUT, they also do that because they can because it's paid for by insurance. Noah Smith's solution to the problem is still to do what European countries do: Negotiate for lower prices from providers as a country.
They do it because the US is a higher income country, with a shortage of medical personnel, where a GP averages about 270k per year, a specialist doctor about 400k, and a nurse practitioner about 130k. Healthcare is the fastest growing sector of the economy and we still have shortages. Cutting salaries in half is going to hurt a lot of people, many such as RNs not rich, and is not going to help shortages.
The average salary of a doctor in the UK is about 184k equivalent. Overall salaries are around half-ish of ours.
We also pay much more for drugs, which has been used to subsidize drug development. I am agnostic on whether that’s ideal or worth the impact on our own, but it is another factor in our higher level of cost.
The Utah plan is from a group in Utah, not Utah itself, and appears unlikely to pass.
Yes but there are a lot of ways we can solve this. Imagine you are a state and you have autonomy over your states economy. You look at your healthcare landscape and healthcare is too expensive. What do you do? Well one thing you could do is fund a local medical school to entice more students to enter the industry and flood the market. With a larger supply of doctors, each of them will get paid less but we will have more of them and the cost of care will go down. This is just one example of many that could get healthcare costs down, and I think small but rich states would do them if they could. At a federal level the problem is not being solved.
This is essentially my answer to all of your questions. You are bringing up the challenges with our current system: Education, healthcare, social security, and debt are all expensive. What should we do about it?
My question in return is: What would each state do to solve it if they had tax autonomy? And might that be better than the federal government trying to solve it?
Personally I’d rather see 50 labs of democracy all solving the problems in different ways unique to their own communities, so we could learn from those various solutions as we do. Just as EU countries do.
“That difference means Germany can afford free college education, Utah can’t.”
Germany has a much lower percentage of students going to college, and a much higher percentage in non-college vocational training. It also has a much higher percentage of students living at home rather than on-campus, and thus less emphasis on amenities.
Those are the main reasons Germany can afford free college education. They are educating proportionately fewer students, and doing so in a more frugal way. If we want to do that, it does not require tax changes.
Yes, exactly. When the state is paying for schooling, they don't care about on-campus amenities or dorms. Instead, they offer things like vocational training and schooling that is are more efficient and directly educates individuals for the workforce. It is the private funding of education that has made it so expensive and inefficient.
My experience with UVA, a pretty decent state school, is that they care a LOT about on-campus amenities and dorms, apparently because that affects their ranking. A school with the dorms and perks I had at UVA in the eighties, which were rather Spartan, would plummet in the rankings, because teenagers care about that, a lot.
Basically, every school in the US, public and private, would have to make the same choice, either voluntarily or by limiting financial aid to tuition, fees, and books.
Totally. If a U.S. state wanted to support free vocational training, they would probably start with making community college free and ramping up vocational schooling. I don’t think the private/public universities would change their tack! Again, universities care about those things because parents and students do. The state cares more about providing vocational training and helping everyone have the skills they need to get a good job after school.
"To allow the states to tax, we need to repeal the sixteenth amendment." Don't you mean, to prevent the national government from taxing?
Currently, taxing takes place at every level, but the Federal government just has a greater capacity to tax somehow. But it's probably due to the complaint you mentioned: free movement of businesses and capital--no state can even levy much tax without risking capital and business exodus.
The same problem applies to workers. A state taxes higher--fine, it also spends more and attracts businesses that want to hire more workers. But this leads to greater unemployment because the incoming workers displace the local labor force. Why? Because of free movement of people.
Extrapolating this back over to capital and business again: State A raises taxes and increases spending on the commonweal, making said state more attractive for business. Or it cuts spending and services such as education that are producing diminishing returns, making the state lean and attractive to business. This creates... unemployment of businesses and capital competing for the same pie. I give you that more likely than crowding out, crowding in will occur, but we want to cover the risks.
Then, without putting up tariff barriers between the states, we are still stuck with a national version of globalization: the economic unit still isn't the individual state, but instead is the national corporation, just as now, the economic unit is no longer the nation state but exists only in the international gap between the democratic nation states.
Moving away to another topic:
Where will the extra dollars come from to fund taxation in a thriving, growing set of economies except from deficit, or else, coin, spending at the national level. The money being taxed locally: yes it goes right back into the local economies, but don't we need to provide for growth in the money supply? It is true the banks provide this with their credit creation for loan customers, purchases of corporate bonds and so on. But one would have thought the money the national government adds to the money supply is important. Note that prior to QE, when for a while the Federal Reserve "Bank" was, I think, a bit free, our central bank always issued physical currency by buying bonds issued by *the Treasury*. Aside from this limited hangout, paper cash, the U.S. money supply comes from deficit spending and private bank credit. Cut federal spending, and don't we decrease stability in the system by relying solely on private bank credit? Note, the states taxing and spending "merely" recirculates a fixed quantity of money, which, perhaps, doesn't contribute to growth in the supply of dollars, *assuming* that is important. I say, "assuming," because after all, that is how Treasury auctions work in relation to Federal Reserve account balances, and yet, the non-bank money supply is contributed to thereby: I estimate a fifth to a third of domestic cash (bank account) dollars are created by government deficit spending. So it's not minor. Especially, if we consider it as the more stabile portion of dollars.
Ah, but I just stopped reading in the middle to interject! I will continue. A little bit jealous, because your writing ability is pretty smooth by comparison to my own!
Yes, you're right. Preventing the federal government from taxing.
Why would freedom of movement (which we already have) lead to greater unemployment? When more workers enter a market, more people spend in that market too, so more businesses become successful and hire more people. Despite a never ending influx of workers, Germany's economy has always grown. Locals wouldn't lose jobs to incoming residents, the area would gain jobs overall.
And then if I'm understanding you correctly, I believe you are saying that trade internationally would still happen federally between the US and other countries, then yes I agree with that. The EU can negotiate trade for all of Europe too, even though the smaller entities manage their own economies too.
As for the second topic: The states would still have to fund the federal government with a percent of their economy, just as the EU does. So the federal budget would still exist, it would just be spent on a more refined group of things, again like the EU. It wouldn't make us less stable, just more lean. That remittance would have to cover important things like paying down the deficit.
In other words: It doesn't have to work the way the US does, as we've seen with the EU there are other methods of organization that also work. And we could find a happy medium between what we are doing and what they are doing!
So the (my) proposal to deal with the zero supply of stable (think 2008 financial crash, 1929...) state-issued money growth inherent in your proposal is:
We don't send *any* tax money upwards to the central government, so the whole of the (small) federal government budget is: DEFICIT spending.
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Why? We can't get any growth in STATE (government) MONEY in any other way than deficit spending, defined as spending more than received in taxes.
Why? Because if taxes equal spending, no growth in state (government issued) money has occurred, as we are only spending out of existing money, with no new money creation, as output (fiscal spending) is exactly counterbalanced by input (taxes). A plus and an equal minus equals zero non-credit dollar growth.
What about the infamous "debt"? It's not the debt but the interest rate on it. If we can lower the interest rate low enough, Treasury bonds constitute free money. How to do this? End the Fed, moving any necessary functions back under the Treasury.
1. Because freedom of movement, of people, allows businesses to ignore the local workforce. This would be exacerbated by a good economic environment, whether produced by lean government or ports and bridges, together with attractive public services that draw-in workers from other regions. Or at the least, we have a break-even effect. I mean there’s more aspects, some on the other side, but to simplify.
2. Actually, I didn't mention international trade, except perhaps as example. I mean: interstate trade. It also is devalued by interstate commerce the same way labor is: whatever a local government does to aid it's own locality is diluted by the influx of businesses that take advantage of it, and local businesses suffer also by the new competition, albeit being a short term benefit to consumers until the cross-border economy becomes the new economic unit and monopolization commences only on a larger scale.
3. Yes, but from WHERE does growth in the total quantity of non-credit money come from? Simply reallocating state taxes over to the federal government doesn't change the quantity of dollars, which quantity we need to *grow*! Where do the businesses in an economic boom get the money to pay their state taxes? It's all built on bank credit--how unstable!
By "stable," I am not referring to the *quantity* of spending--let it be as you say--you have all good ideas!--but merely to that part that is in deficit! The deficit is where state money comes from; the rest is bank credit. I estimate the current ratio of domestic state dollars to credit money, just talking about bank account money, is two to five. (International dollars are all credit money, I guess--a hundred thirty trillion?)
As for the Europeans: most ordinary Europeans would argue, I think, that the austerity-based Euro currency concept doesn't work--deficit spending limits as an arbitrarily derived percentage of GDP, which GDP *shrinks* in a bad economy! Although, you make a good case they are in many respects doing a better job of it than we are! I am not here to deny your essay! Sure, it's great! Don't worry. Just to present the other points surrounding the topic.
If I'm understanding you correctly, I see no reason why deficit money shouldn't still be part of the mix at the federal level, especially during economic downturns or to invest in public goods. It's an interesting idea to make that the central use for federal management of the treasury. (Especially over bank loans!)
Or if we really aren't just playing at State sovereignty, which I think we might be, we give them some sort of monetary independence. The era of coins and bills is probably over (or I can't get my head around my replacement idea for that). So:
-- Either we let them issue payments to banks in state tax credits--let the banks state the dollar to state "currency" exchange rate, no problem.
-- Or we leave dollar denomination, but let each state open a payments clearinghouse, a kind of mini-central bank, less all the bank woo, through which state taxes must be paid. Such a clearinghouse could even bypass the banks and allow businesses to make business-to-business payments on it.
Yes. You've got my idea:
If there is sufficient dollar demand in the economy, coming from state taxes and business demand, the Federal government doesn't require ANY taxes in order to spend--the states don't have to literally pass the money on upwards! In theory. We can talk details, of course...
You know, it's not a one-for-one, spending and taxes, or else we would still have the same MQ as in 1792! Not that we actually "need" any money at all, as there are other ways to hit the nail on the head.
Your article became the subject of our dinner conversation tonight. We talked about what different states might do with their newfound taxing authority.
There might first be a partisan rush to finally do what red and blue states have wanted to do for a long time. But I think the national partisanship would cool, and reality would kick in with another wave of proposals. People might begin to think less about what fits their ideology and would begin to think more about what works for them. The people, not the bureaucrats, in one state might work for what another state has implemented irrespective of whether the state was (hopefully) formerly red or blue. It would really act to lower the temperature because people would be more empowered at the state level.
Speaking of red, conservatives should like it. It seems like charter schools writ large. States would have to compete, and theoretically they’d all get better watching 49 other civic laboratories at work. We’d have niche states! Moving vans and Realtors, indeed, would have increased business. So might trains and planes: people might travel more because maybe states would be more like foreign countries—exotic instead of homogenous. Maybe the private sector would follow the states in focusing on local needs. Barnes & Nobles as a trendsetter in this regard! I’m dreaming big here, but maybe regional and even local accents would start to develop again.
The Commerce Clause would need to be revisited, and the Privileges and Immunities Clause would become a hot item again in Constitutional Law.
Your proposal also appeals to a certain states-rights impulse, and that gives me pause. Even a conservative political theorist like Harry Jaffa thinks that the clamor for states’ rights has a still-meaningful connection with slavery. We may have to also beef up the Constitution’s clause guaranteeing a republican government in each state. We’d especially have to make sure that “We the people” doesn’t become “We the states.” Perhaps we’d require constitutional conventions in each state separate from the state legislatures, as we did during the Constitution’s ratification, once a proposed amendment came out of Congress or out of a national convention. Maybe we could balance the proposal in part also by doing away with the Electoral College.
I like the idea of taking power and money away from the federal government, though. We were talking tonight about how much the federal government spends to make as many states as possible happy, and the result is incoherent with little bang for the buck compared to, say, Canada. Earmarks would take a huge hit, happily.
The political crisis in our country is dark, but big thinking like this may have its moment because of it. I certainly hope so. We tend to make big constitutional changes every 90 years or so after a civic crisis (see, e.g., the work on patterns in English and American history by William Strauss and Neil Howe).
This proposal, I think, is in the spirit of the American revolution. Thankfully, I won’t see federalism the same way again.
There are certainly a lot of things we could do alongside an idea like this one (like the ideas you mention), but I wanted to start with taxation because technically a lot of our autonomy could come from that one change alone without changing much else. We would still be the United States, we would still be one country, we would still have the electoral college and all other things (for better or for worse), just the federal government would be operating with less money and the states would be operating with more.
You're right that big ideas tend to happen at moments of key inflection, and we're definitely at one of those now!
I really like this idea. Everyone seems to be demanding more power and authority for the states, and having them operate fiscally as their own countries and enabling them to spend their own tax dollars in the best ways to serve their individual citizens more effectively makes great sense. Each state is different and their citizens want different things. Let’s make it happen!
Exactly, could be interesting!