Biden’s budget proposal – can federalism get around US gridlock?

Last week, US President Joe Biden outlined his budget proposal, the third of his presidency. The $6.9 trillion budget set out policies designed to reduce the US federal deficit by nearly $3 trillion over the next decade alongside $4.5 trillion worth of tax increases on corporations and high-income Americans. While there is little possibility of the budget becoming law given the split control of Congress, the blueprint established Biden’s economic vision for the second half of his term and set out the President’s stall in preparation for spending talks with congressional Republicans.

Many of the policies announced will come as little surprise to those who have been following Biden’s policy agenda; the President has in recent months made deficit reduction a central priority for his administration, having touted in his State of the Union address last month the $1.7 trillion reduction in the deficit during the first half of his presidency. The budget proposal builds on the provisions of previous legislative victories of the past two years, such as allowing Medicare to negotiate the prices of more drugs, reducing prescription drug costs for seniors, restoring the enhanced Child Tax Credit and making permanent the enhanced Obamacare health subsidies. It also revisits several policies, such as paid family and medical leave and universal free preschool, which had been part of Biden’s Build Back Better package in 2021 but were abandoned after that piece of legislation failed to pass the Senate.

This year’s budget proposal has little chance of passing the GOP-controlled House of Representatives: the White House and House Republicans have been locked in a standoff since January over the federal debt ceiling. While both the President and congressional Republicans share a desire to eliminate or reduce the deficit, what separates them is their approach to doing so. Republicans have called for sharp cuts in government spending, and are expected to publish their own budget plan in the coming weeks.

The budget, policy content aside, is always a powerful reminder of the US’ federal character as a union of distinct, often very culturally and politically different, states with great legislative autonomy. This notion of ‘united in difference’ also runs through the core ethos of the Constitution. Layered checks and balances from local governments all the way up to the federal level provide political diversity of thought as well as institutional homeostasis.

Without diminishing the crucial role the Federal Government plays in people’s lives, most Americans encounter their state government more often on a day-to-day basis. State governments spend $1.9 trillion annually on services for citizens – from issuing driving licences to running schools. The US, in this regard, is a natural laboratory for policy experimentation, with each of the 50 states often running government services their own way. While differences may not always be so marked, the underlying idea of unique political preferences and ‘policy niches’ by state holds true.

The framers of the US Constitution were adamant on maintaining balance between state and federal government. They were especially concerned with the hyper centralisation of power at the federal level and what De Tocqueville defined as the risk of “tyranny of the majority”.

For millions of Americans, though, federalism is not just some lofty aspiration to safeguard, it is a lived reality. Crossing the border from Oklahoma to neighbouring Texas, for instance, effectively means going from a state with a corporate income tax rate of 4% and Medicaid coverage for low-income adults to one with neither.

A McKinsey survey found that citizens’ satisfaction with government services can also vary widely across states. The gap between respondents’ citizen satisfaction scores (CSS) ranges from 22 for the highest-performing state to -36 for the lowest.

Nonetheless, federalism remains popular with the American public, with many expressing a high degree of faith in their state representatives. Opinion polls show that Americans also tend to support the federal government where it does assume responsibility for public policy: in 2020, for example, public support for current levels of defence spending reached a record high of 50%, and federal aid to Ukraine remains broadly popular among Americans, though there are signs of divergence along partisan lines. Where the Federal Government intervenes in policy areas such as health, these efforts also find favour among voters, with the prescription drug price cap and other healthcare provisions contained in last year’s Inflation Reduction Act enjoying widespread majority support among Americans.

Above all, however, it is federalism as a concept that deserves credit as a useful lens through which to approach government service delivery. Indeed, having variation in the delivery of government services across states, much like the idea of competition in the private sector, encourages fruitful cross-pollination of ideas and methods, sharing best practice and giving lawmakers ample case studies to consider.

States can often provide tailored services to local communities, facilitating greater localisation and integration with other services, and make cost-effective decisions based on realities on the ground. Moreover, with the GOP now in control of the House, gridlock in Congress may complicate bipartisan efforts to make changes or improvements to federal services. The budget negotiations of the coming weeks are likely to exemplify this delicate balancing act between federal and state responsibility, with House Republicans keen to secure a smaller role for the Federal Government and a larger one for states.

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