Fund States to Ensure America Recovers from Coronavirus, Then Help Them Fund Themselves

(An earlier version of this piece was first published at InsideSources.com)

As the war against Covid-19 rages in empty streets and crowded hospitals, a battle over the authority and resources to wage it has broken out in the halls of government between the federal government and the states.

President Donald Trump opened the engagement by claiming “total” authority to reopen states, only to retreat under heavy fire from both parties. He then attempted a flanking movement by egging on protests against state governments, followed by a bait-and-switch by encouraging and then undermining the governor of Georgia’s own decision to reopen.

Mr. Trump was soon reinforced by Senate Majority Leader Mitch McConnell, who responded to a funding request from the National Governors Association by advising states “to use the bankruptcy route.” Drawing fire in turn, Mr. McConnell gave ground, saying there “probably will be another state and local funding bill” soon.

The outcome of the political battle is yet to be seen. But in the struggle against Covid-19, the states have possession of the field. State governments led by both parties have made, and will continue to make, the toughest decisions about how to contain the virus. They took initiative on social distancing when the federal government was slow to act. And they can shield their residents from certain misguided federal impulses, such as premature reopening or ill-judged medical advice.

This is possible because the states’ reserved powers under the Constitution enable them to function as an unofficial fourth branch of government at the national level. In this way, they don’t only make the Union more resilient in a crisis, but help to guarantee its long-term liberty and vitality through separation of powers.

The states’ tenacious response to the coronavirus has a big price tag, however. Emergency expenditures have depleted state budgets just as the revenues supporting next year’s budgets have dried up. Whereas the federal government largely funds itself with relatively stable (for now) income tax and debt, states rely mainly on sales taxes and have limited capacity to borrow. Sales taxes and related levies on goods and services have been battered by Covid-19: people are buying less, and prices of taxable commodities such as oil have collapsed.

State governments cannot carry out their vital role if they are bankrupt. If America is to emerge resurgent from this pandemic, it must get its states back on their feet.

The first step is for Congress to reconsider its resistance to the National Governors Association request for $500 billion for the states, with no strings attached. The two governors who sent the request — Republican Larry Hogan of Maryland and Democrat Andrew Cuomo of New York — have worked hard against Covid-19. They should be taken seriously when they say the absence of such funds will hamper “public health, the economic recovery, and — in turn — our collective effort to get people back to work.”

But in the long run there will need to be a different fiscal cure. While it is right for the federal government to mobilize resources in times of crisis, it is unhealthy for states to rely heavily on Washington for funding in normal times. The expectation it engenders could incentivize states to habitually spend far beyond their means, the object of Senator McConnell’s ill-timed but somewhat justified concern. More importantly, overreliance could enable a dictatorial-minded president to assert “total authority” by threatening to withhold cash, and we would lose one more restraint on power.

Our states are already worryingly dependent on federal money: it amounts to roughly a quarter of state revenues, much of that tied to healthcare. Let Covid-19 be the impetus to rebalance this. One way is to reduce the federal income tax rate to give states an opportunity, if they choose, to increase theirs. At the same time, give states more responsibility for entitlement programs such as Medicaid that are now run at the federal level but overlap with the role of state governments.

The states would have more work to do, but more of their own resources with which to do it. The federal government could focus on things only it can do such as defense and diplomacy, including working with other countries to contain epidemics before they reach our shores.

There will be a conflicting impulse to give the federal government sweeping power over public health, which we now know entails control over many aspects of life. This impulse relies on an assumption that the federal government is always wise and virtuous. It is not. States are not either; some will make poor decisions in response to Covid-19. But, as a whole, they constantly learn best-practices from each other and find solutions that fit regional needs.

More centralization would be dangerous. Our Union has already concentrated a lot of power in Washington over the past century. As a result, every presidential election now feels like a one-shot, winner-take-all struggle for the only prize that matters: the one at the top.

I suspect that’s contributing to the corrosive polarization we all lament. Instead, let’s heal our country by reinvigorating our states.

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