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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Utah Sen. Mike Lee’s Case for Real Federalism



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Back in 1999, Michael Greve published Real Federalism, which argued that while conservatives often view federalism through the lens of “state’s rights,” the chief virtue of federalism is that not that it protects the autonomy of state governments, but rather that it promotes citizen choice and competition among the states. In his Heritage Foundation speech, Utah Sen. Mike Lee briefly makes reference to the Transportation Empowerment Act, a bill he is co-sponsoring with Rep. Tom Graves. Though I’ve yet to see a detailed version of the proposal, it looks like a paradigmatic example of “real” or competitive federalism at work:

Under our bill, the federal gas tax would be phased down over five years from 18.4 cents per gallon to 3.7 cents. And highway authority would be transferred proportionately from the federal government to the states.

Under our new system, Americans would no longer have to send significant gas-tax revenue to Washington, where sticky-fingered politicians, bureaucrats, and lobbyists take their cut before sending it back with strings attached. Instead, states and cities could plan, finance, and build better-designed and more affordable projects.

Some communities could choose to build more roads, while others might prefer to repair old ones. Some might build highways, others light rail. And all would be free to experiment with innovative green technologies, and new ways to finance their projects, like congestion pricing and smart tolls.

But the point is that all states and localities should finally have the flexibility to develop the kind of transportation system they want, for less money, without politicians and special interests from other parts of the country telling them how, when, what, and where they should build.

Note what Lee’s proposal pointedly does not do: it does not create a new transportation block grant to distribute federal funds according to some complex formula. Instead, the federal government shrinks its fiscal footprint by shrinking the gas tax, and state governments can respond as they choose. Some states will simply substitute an increase in state motor fuel taxes for the decline in federal taxes. Others might adopt entirely different strategies for financing infrastructure, or they might try to identify efficiencies. The central reason to move in this direction is that, as Rohit Aggarwalla has argued, “there is no longer a consensus in Congress on what a national transportation system should be,” and this is entirely natural. The Interstate Highway System is essentially complete, and there is substantial variation in how Americans live across states and metropolitan areas, and these different patterns demand different infrastructure strategies. State governments are in a perfect position to pick up the slack. The public is generally willing to invest in infrastructure; Aggarwala notes that “state and local referendums on raising taxes or issuing debt to pay for transportation projects usually pass.” But voters are skeptical of efforts to raise the gas tax, as they aren’t convinced the money will be spent well, or that it will make its way back to them:

Thus, the federal gas tax has become both a ceiling and a floor. It makes raising state gas taxes unpalatable. And since states get back at least what they contribute, the tax encourages them to keep spending even if they don’t really need more roads.

Getting rid of the tax would force a serious discussion in each state about how, and how much, to fund roads and transit. States could choose to reimpose the same tax, or they could set a different rate based on their desired level of transportation spending. They could choose to raise other kinds of revenue to pay for roads and transit — such as sales taxes, property taxes, local taxes or tolls. Or they could simply reduce their transportation spending.

Lee’s strategy should be particularly attractive to states that favor mass transit. Right now, the federal government places severe limits on using federal money for mass-transit operations, for the entirely sensible reason that the funds generally went towards raising wages and not increasing productivity. But the Transportation Empowerment Act would give mass-transit states more room for maneuver. It also opens the door for states to create new public road enterprises that will have greater flexibility to meet consumer demand and to raise revenue in ways that will improve the quality of transportation services.

To be sure, real federalism along these lines isn’t practicable or attractive in all domains. The case for a significant federal role in financing the Medicaid program rests in part on the countercyclical nature of anti-poverty programs — spending goes up when revenues go down, and the federal government has more scope to borrow. This same dynamic doesn’t obtain with transportation, or at least not in the same way. There is also an argument from redistribution, i.e., federal financing of projects administered by state governments allow affluent households in affluent states to transfer resources to less-affluent households in less-affluent states. The danger, of course, is that as a result, less-affluent states won’t take the steps necessary to spur economic growth. So we have to evaluate the extent to which state governments have a strong self-interest in “doing the right thing.” On transportation, it seems clear that state governments have a strong incentive to maintain high-quality infrastructure, as virtually all voters benefit from the economic growth that follows.



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