Reviving Federalism to Tackle the Government Debt Crisis

Congress should change course and cut spending to reduce debt. Lawmakers have tried to tackle the debt with new budget rules, but they have not balanced the budget in more than two decades and today are financing more than a quarter of federal spending with borrowing. No mechanisms to effectively restrain debt have gained wide support in Congress.

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However, there is hope. A partial solution presents itself when we compare out‐​of‐​control federal debt to stable and legally constrained state debt. Federal debt is eight times larger than the combined debt of all state and local governments. Why is that the case, given that all elected officials have the same incentives to borrow and spend? The answer is that the states have extensive constitutional, statutory, and economic restrictions on deficits, debt, and spending that steer them toward greater fiscal responsibility.

An important way to tackle America’s debt problem is to devolve a large part of federal spending to the states, allowing them to fund it themselves.

[This is lipstick on a pig, even if it’s a good practice in principle. The annual deficit is $2 trillion, and the annual discretionary budget is around $1.7 trillion. The debt and deficit isn’t coming from appropriations — it’s coming from statutory spending on entitlements, which Congress can’t change without eliminating those programs or drastically altering them in statute. — Ed]

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