Ross and Tyler have both written about Canada’s extraordinary success in tackling its structural budget problem in the mid-1990s. Tyler writes:

Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime ministerand Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book “In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint,” Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget — a history that helps explain why the country has managed the current global recession relatively well. To be sure, the spending cuts meant fewer government services, most of all for health care, and big cuts in agricultural subsidies. But Canada remained a highly humane society, and American liberals continue to cite it as a beacon of progressive values.

Ross adds valuable political context:

In other words, Canada’s budget was balanced because a right-of-center party passed a V.A.T., whose massive unpopularity helped elect a large left-of-center majority, which then used its newfound power to make drastic spending cuts. To have an equivalent sequence of events in American politics, you would need Barack Obama and the Democrats to pass dramatic cuts to Medicare and Social Security in 2014 or so, followed by a 2016 campaign in which Bobby Jindal and his running mate, Paul Ryan, swept to victory by promising to repeal the entitlement cuts, but then broke their promise once in office and starting raising taxes instead.

I’ll add another wrinkle: part of what happened in 1995 was a shift of responsibilities from the federal to the provincial governments. The key instrument of this shift was a revamp of two long-standing transfer programs into a new program called the CHST, later split into the CHT and the CST. (If this isn’t exciting enough for you …) This has had powerful consequences, e.g., it may have accelerated the relative rise of Alberta, where oil and gas revenues have left the province in very good fiscal shape. The other provinces have struggled in varying degrees. Quebec has a gross debt that is 50 percent of provincial GDP, and many in Ontario, where the collapse of the automotive industry is taking its toll, fear permanent economic decline.

Thomas Courchene has vividly described Canada’s provincial squeeze. Paul Martin had one approach:

* Employing what might be termed the federal savings power the 1995 federal budget dramatically cut the CHST transfers, which served to fiscally starve the provinces * Because the provinces could not cut (indeed had to increase) health spending, they drew funds from everywhere to transfer monies into Medicare, creating problems across a wide range of policy areas. * Martin then began to restore fiscal balance by using the federal spending power to deal with these cash starved NI/PJ areas—human capital (millennium scholarships. research chairs, early childhood development, day care) and with cities (GST exemption, federal gas tax, creation of a federal ministry), and of course health. I have labeled this “hourglass federalism,” namely Ottawa’s end run around the provinces to deal directly with cities and citizens, effectively leaving the provinces as the squeezed middle of the division-of-powers hourglass.

And Stephen Harper has pursued a different, more classically federalist policy, albeit with departures and compromises.

In my view, downloading responsibility to the provinces is a good thing — but in the Canadian context, there is a serious problem: federal law restricts the extent to which the provinces can experiment with the health system. Moreover, pace Tyler, Canada’s political culture creates serious roadblocks to comprehensive reform that are in some ways as formidable as public distrust of government in the U.S.

To be sure, I’d say the Canadians are better off than we are: the GST has helped improve the federal fiscal picture and it has helped finance lower personal and corporate income tax rates, improving work incentives. But the Canadian example is yet another object lesson in why the ACA will cause serious problems for us down the road: by straitjacketing the states, the legislation will make it harder for all levels of government to achieve fiscal sustainability.