Expanding an already bloated federal government

(PNI) President Barack Obama's State of the Union address illustrated what a dead letter federalism is among Democrats. Not that further illustration was necessary.

Federalism holds that the national government should limit itself to things of truly national scope. Things that are primarily of local concern should be left to state and local governments.

Federalism was a big deal to the founders. They wanted an energetic national government, but one that was confined to enumerated national functions. The founders also envisioned a bright line between the federal and state governments, each sovereign within their own spheres.

We are a long way from that. Today, the Democratic Party sees virtually nothing as outside the purview of the federal government. The Republican Party talks a good game about federalism, but usually ends up undermining the principle when it acquires national power.

Today, the lines between the federal government and state and local governments are hopelessly blurred. The federal government spends over $600 billion a year on grants to state and local governments. Arizona state government receives more in federal funds than it raises in general-fund taxes.

Today, state governments operate principally as service delivery mechanisms for federal social-welfare programs. This means that there is no real political accountability for the programs, which is why they grow and function like a blob.

If Medicaid costs are spinning out of control, who's to blame and who should do something about it? The federal government that provides most of the funding and sets up the basic rules, or the state governments that actually administer the program? The food stamp program has grown astronomically of late. Purely a function of a bad economy, or is there something else going on? Whose job is it to figure that out?

President Ronald Reagan wanted to sort out the blob with his new federalism initiative, clearly making some functions, such as Medicaid, fully federal, while making other functions, including most welfare programs, fully state and local. There were some Democratic governors at the time, including Arizona's Bruce Babbitt, who were also interested in a sorting out of responsibilities.

But agreement was never reached, nothing of significance happened. So, the blob endured and grew.

Obama proposes to feed it even more. The federal government should establish manufacturing innovation institutes in economically distressed areas and provide incentive grants to states to increase the energy efficiency of homes and businesses.

The federal government should fix 70,000 bridges and create a federal fund to modernize ports and pipelines. The federal government should have a new grant program to get high-school graduates better ready for high-tech jobs. And, according to Obama, the federal government should make sure that every kid has access to high-quality preschool.

The federal government, however, does not have a greater interest in the recovery of economically distressed areas than the states in which they are located, or greater insight into how to turn them around. Every bridge in America is located in a state and local community that has a greater interest in its condition than the federal government.

Every port and pipeline in the United States is located in a state and local community. If there are gains to be had from modernizing them, local governments have a greater incentive to get it done and done right than the federal government.

Every kid in America lives in a state and local community that is more interested in his education and workplace preparedness than the federal government. What do we really have to show for the increased federal involvement in education, under George W. Bush or Obama?

The federal government is broke, and broke in a way that threatens the American economy. Proposals that it do even more are surreal, even if they are supposedly paid for. If there's loose change to be had, the federal government should use it to reduce the deficit, not further expand its reach.

It's nowhere on the horizon, but a revival of Reagan's new federalism discussion is badly needed.

Reach Robb at robert.robb@arizonarepublic.com.

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Presidential Race Pits Government Against Business

An Obama campaign video shows the president’s national political director, Katherine Archuleta, tearfully crediting Mr. Obama with having saved her daughter’s life. She portrays the president as a hero of government whose health care law assures her daughter, a cancer survivor, insurance coverage forever.

A video by a political committee backing Mr. Romney follows a nearly identical tack: evocative music and a tearful description of Mr. Romney as “the man who helped save my daughter.” But the testimonial, from a former partner at Bain Capital, depicts Mr. Romney as a hero of business who once shut down his firm to aid search efforts until the partner’s missing teenager was found.

Those competing stories are rooted in more than the biographies of the Democratic incumbent, a former professor and community organizer, and his Republican challenger, a onetime financial industry titan. They also reflect the divergent ideologies and core constituencies of the two parties.

Mr. Obama champions government as a linchpin of future economic growth and the average American’s protector from the excesses and failures of the free market.

Mr. Romney condemns government as a menace whose excesses and failures imperil the free market’s ability to enhance individual opportunity and make the nation prosperous.

Each has more negative than positive material to work with. Their back-and-forth is a clash between institutions reduced to equal levels of public disdain after years of economic weakness, Wall Street’s collapse and bailout, high unemployment levels and shifting election outcomes.

A Pew Research Center poll found in February that only 22 percent of Americans rated the federal government as having a positive effect on American life — precisely the same proportion who rated banks and other financial institutions positively.

“It’s clearly a standoff,” said Pew’s pollster, Andrew Kohut, though one involving coalitions of different shapes.

Blacks and Hispanics were twice as likely as whites to rate government positively, for example, and nearly four times as likely as white evangelicals. Mr. Obama’s argument draws stronger support from single women, Mr. Romney’s from white men and married women.

The contours of the partisan debate have grown familiar since Ronald Reagan called government the problem, not the solution, and the 2000 election established how closely it divides the nation.

But each side sees an opening for a breakthrough in November.

For the Romney team, it is the juxtaposition of a Democratic incumbent struggling with hard times against a Republican candidate uniquely suited to extend the arc of conservative ascendancy that began with Reagan’s antigovernment campaign in 1980.

“We haven’t had a candidate that’s been as successful from a business standpoint as Romney has been,” said Carl Forti, a strategist for the pro-Romney “super PAC” that produced the advertisement featuring his business partner. As hostile as swing voters may be toward Wall Street and big corporations, he added, “they absolutely know government’s worse.”

For Mr. Obama’s advisers, the opening lies in their ability to tie Mr. Romney to the market’s generation-long failure to deliver rising living standards to average Americans. “The country tried everything Romney says, and it brought the economy to the brink of collapse,” said Mr. Obama’s pollster, Joel Benenson. “The American people know our country has a big role to play in investing in education, in R&D to produce new industries and in infrastructure.”

That explains the Obama campaign’s recent attack on Mr. Romney’s record at Bain Capital. An Obama campaign video with sorrowful former steelworkers cast Mr. Romney as a corporate “vampire” who with his partners bought a Missouri manufacturer, siphoned away profits for themselves and bankrupted it. Mr. Obama’s defense this week of his campaign’s Bain attacks underscored the ideological clash. The president asserted that pursuit of private-sector profits was insufficient preparation for service as chief executive of government, who is obliged to consider the interests of all constituents, including workers.

The Romney campaign answered that tale of villainy with one of heroism. Its ad highlighted a different company that “Mitt Romney’s private-sector leadership team” helped start, creating 6,000 jobs.

“If that’s not the American dream, I don’t know what is,” a grateful worker concluded.

The route to the American dream sketched by Mr. Obama involves critical assistance from the government. In an interactive Obama campaign graphic, the fictional character “Julia” benefits from programs like Head Start, small-business subsidies and the new health care law. The campaign recently spent $1 million on a targeted mailing to women in swing states trumpeting benefits they would lose if Mr. Romney won a repeal of the health law.

Mr. Romney dismissed the “Julia” device as an illustration of the centrality of government to Mr. Obama’s vision. He said at a rally this year, “If you’re looking for free stuff you don’t have to pay for, vote for the other guy.”

Mr. Obama promotes the two-year-old financial regulation law as protection against the depredations of Wall Street, with all the more urgency after JPMorgan Chase’s recent multibillion-dollar trading loss. Mr. Romney insists that the law inhibits private-sector-led growth and supports its repeal.

He takes the same view of the government’s involvement in bailing out auto companies, saying it rewarded unions friendly to Democrats at the taxpayers’ expense; his campaign’s new Web video features nonunion workers complaining that Washington had not helped them. Mr. Obama says the government bailout saved the industry.

Both sides supplement philosophical arguments with practical ones. Mr. Romney casts the administration’s interventions as simply ineffective; Mr. Obama’s campaign says Mr. Romney failed to deliver on jobs and government-slimming promises as governor of Massachusetts.

Yet they consistently offer voters a fundamental contrast of outlook.

Mr. Obama wants government to enhance opportunity and temper inequality through investments in education, research, infrastructure and new energy technologies — paid for with help from higher taxes on the wealthy. Mr. Romney, speaking in Des Moines last week, articulated the opposite view.

“The private sector is by far the most efficient and cost-effective” at generating economic growth, Mr. Romney said. “As President Obama and old-school liberals absorb more and more of our economy into government, they make what we do more expensive, less efficient and less useful.”

“They make America less competitive,” he concluded. “You do not owe Washington a bigger share of your paycheck.”

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GOP rivals focus on flat taxes, smaller government (AP)

WASHINGTON – On jobs and taxes, the top Republican presidential rivals are locked in a fierce game of one-upmanship. They're all trying to outdo each other in offering the boldest economic plan for the campaign to unseat President Barack Obama next November.

Despite some notable differences in the blueprints, they all are built around the central theme that Obama's stimulus programs haven't worked and his job creation record is dismal. Example No. 1: Unemployment is holding at a painfully high 9.1 percent.

"We knew ultimately that the 2012 election was going to be a big referendum on the president," said Douglas Holtz-Eakin, former director of the Congressional Budget Office who was the chief economic adviser to Arizona Sen. John McCain's 2008 presidential campaign. "But Republicans also have to say what they would do. It's not enough to say we don't like what's going on."

Texas Gov. Rick Perry teased rival Herman Cain — "I'll bump plans with you, brother" — when both rolled out ambitious proposals for a single-rate flat tax. That's a concept hailed by numerous Republicans and some Democrats for its simplicity, yet it never has managed to attract much congressional support. Former Massachusetts Gov. Mitt Romney is the lone major GOP contender not calling for a flat or flatter tax.

The 2012 contenders also are serving up a platter of familiar conservative fare: calls for deep spending cuts, reduced government regulation and an emphasis on private enterprise as the true engine of job growth and prosperity.

The plans underscore the party's attempt to respond to the biggest voter concerns of the day and capitalize on what they see it as Obama's chief vulnerability, the still shaky recovery. The candidates claim their various plans would help create millions of private sector jobs; just how is not always clear.

With polls showing that most people support increasing taxes on the wealthiest households, as Obama and Democrats are proposing, the GOP flat-tax plans would largely end up as a boon to the wealthiest, independent analyses suggest.

The tax debate coincides with spreading protests, inspired by the Occupy Wall Street movement, against economic inequality. The nonpartisan Congressional Budget Office recently reported the top 1 percent of American earners doubled their share of national income over the past 30 years, to 20 percent.

Some of the GOP plans show depth, complexity and sophistication, Holtz-Eakin said. Not every economist is as charitable or sees the GOP offerings as workable.

"I don't think any of the plans can be taken too seriously as actual policy," said Bruce Bartlett, who held top economic posts in the Ronald Reagan and George H.W. Bush administrations but now considers himself a political independent.

"The Republican goal is to nominate the person who is the most committed, most articulate in terms of the Republican philosophy. What they're competing for is who best represents that core philosophy and articulate it in a way that the base finds satisfying," Bartlett said.

No matter that some GOP dogma, such as an insistence that cuts in business taxes and government regulation will spur private-sector job growth, "is economic nonsense," Bartlett said.

All the GOP rivals would pare federal regulations.

Rep. Michele Bachmann, R-Minn., would kill the Environmental Protection Agency and repeal the 2010 Dodd-Frank financial industry regulation law. Romney is proposing a 10 percent cut in the federal workforce. Former Pennsylvania Sen. Rick Santorum wants to repeal all regulations put in place by Obama. "The federal government kills jobs. We don't need more programs and bureaucrats telling business how to operate," he says.

Economists generally agree the shortage of jobs isn't caused by government overregulation but by a lack of consumer demand. A recent Labor Department survey showed that less than 1 percent of all layoffs in the past four years have been attributed by employers to government regulation.

With consumer spending driving two-thirds of the U.S. economy, those without jobs have little money to spend. Many with jobs fear losing them, or their houses are worth less than their mortgages, so they have little spare cash or borrowing ability.

Killing off Obama's health care overhaul is a common feature of the GOP plans. So, too, is a proposal to offer American companies a chance to bring money generated overseas back into the U.S. without being taxed. But studies have shown that a similar repatriation "holiday" in 2004-2005 had little effect on job growth.

Some Republicans go further than others. For instance, Bachmann says she would consider allowing oil and gas exploration in the Florida Everglades. None of her rivals has been that bold, perhaps given Florida's importance in presidential calculus.

Hoping to coax more U.S. export jobs, Romney threatens to trade penalties against China if it does not boost the value of its currency. "If you're not willing to stand up to China, you'll get rolled over by China," he says. But former Utah Gov. Jon Huntsman, who recently served as U.S. ambassador to China, argues that such penalties probably would lead to a trade war that would hurt both economies.

On taxes, Romney would make incremental changes and move later to a simpler system. For now, he would extend Bush-era tax cuts, lower the 35 percent corporate tax rate to 25 percent and exempt investment income for those earning less than $200,000. He would extract more U.S. oil, coal and natural gas, expand trade pacts and cut federal spending.

Rep. Ron Paul's plan is the most radical. The Texas Republican, a libertarian, would scrap the income tax entirely. He contends the government didn't have the authority to impose it in the first place. He would make ends meet through excise taxes, tariffs, and a smaller government. In the process, he would abolish the Internal Revenue Service and the Federal Reserve.

Cain, the former Godfather's Pizza CEO who has replaced Romney as the GOP front-runner in some recent polls, repeatedly pushes his "9-9-9" tax plan that would cut personal and corporate tax rates to 9 percent each and impose a new 9 percent federal sales tax.

Perry's plan would give taxpayers the choice of paying at a flat rate of 20 percent or adhering to the current tax structure. He would preserve deductions for mortgage interest, charitable donations and state and local tax taxes for households earning less than $500,000 a year and offer a $12,500 exemption for individuals and dependents.

Former House Speaker Newt Gingrich has proposed a 15 percent optional flat tax. Huntsman would set up a three-tiered system with a top rate of 23 percent. Bachmann would replace the tax code with a yet-to-be specified flat tax. Santorum proposes a "simpler, flatter and fairer" tax without offering specifics. He would cut the corporate tax in half and eliminate it for manufacturers who keep jobs in the U.S.

In the past, flat tax schemes — pushed by Democrat Jerry Brown in 1992 and Republican publisher Steve Forbes in 1990 and 2000 — failed to generate much political traction, in part because most plans would put a disproportionate burden on lower-income families.

Quick studies of the current major GOP proposals by independent research groups have made similar findings.

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Follow Tom Raum on Twitter at http://twitter.com/tomraum

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