Rethinking Federalism for More Effective Governance

Abstract

For common reasons the federal government and most state governments face rising structural deficits even as the economy recovers. An aging population requires retirement income and increasingly expensive health care, while a prosperous economy requires public investment in skills, technology, and infrastructure. However, stressed federal and state tax systems are increasingly inadequate. The author revisits proposals, made twenty years ago, for substantial changes in fiscal federalism designed to help both levels function more effectively. She argues that the case for dividing the governmental job more sharply between the two levels is stronger than ever and explores the pros and cons of devolving elementary and secondary education to the states. She argues for common shared taxes, especially a broad-based federal consumption tax shared with the states.