Restoring Responsible Government by Cutting Federal Aid to the States
36 Pages Posted: 3 Jan 2020
Date Written: May 20, 2019
The federal government has a large presence in state and local policy activities such as education, housing, and transportation. That presence is facilitated by “grants-in-aid” programs, which are subsidies to state and local governments accompanied by top-down regulations.
Federal aid spending was $697 billion in 2018, which was distributed through an estimated 1,386 separate programs. The number of programs has tripled since the 1980s, indicating that the scope of federal activities has expanded as spending has grown.
Rather than being a positive feature of American federalism, the aid system produces irresponsible policymaking. It encourages excessive and misallocated spending. It reduces accountability for failures while generating costly bureaucracy and regulations. And it stifles policy diversity and undermines democratic control.
Cutting federal aid would reduce federal budget deficits, but more importantly it would improve the performance of federal, state, and local governments. The idea that federal experts can efficiently solve local problems with rule-laden subsidy programs is misguided. Decades of experience in many policy areas show that federal aid often produces harmful results and displaces state, local, and private policy solutions.
This study describes the advantages of cutting federal aid. It discusses 18 reasons why it is better to fund state activities with state revenues rather than with aid from Washington. Shrinking the aid system would improve American governance along many dimensions.
Keywords: federal aid, welfare, education, transportation, American federalism, subsidies
JEL Classification: H00, H1, H10, H11, H13, H13, H20, H24, H4, H40, H41
Suggested Citation: Suggested Citation