A cure for the blue-state fiscal blues

Over time he noticed that the imbalance never changed, regardless of which party was in the White House or controlled Congress. So in one of his final studies, Moynihan suggested that maybe the country needed to pursue a different approach, which he termed a ‘new federalism.’ It was time, he argued, to pare the national government’s functions back to those things it could do better than individual states, such as national defense. Then Washington could cut federal taxes significantly with the money it saved and leave that money back in the states, where each state could then decide which model of government it would follow: a low-tax, basic services model, or a high tax, high services approach.

“It is time to trade,” Moynihan wrote in 1998. “Less activism in Washington in return for more revenue at home, for whatever active measures recommend themselves to the state or municipality in question.” As one Washington journalist wrote at the time, Moynihan “is the last of the New Deal liberal Democrats, so we must sit up and pay sharp attention when Moynihan says that New Deal-type government has become a bad deal” for some states.

Following the Moynihan prescription might quickly cure state fiscal woes in places that have supported the President. California might get enough of a windfall to fix Jerry Brown’s budget without raising state taxes again. New Jersey might realize enough so that it could adequately finance its woefully underfunded pension system. New York might be able to expand its subsidized health insurance to cover its staggering number of uninsured citizens. The President’s home state, Illinois, another net contributor, might be able to clear up its $5 billion in unpaid bills, a result of the country’s worst state budget mess.