In 2011, President Obama proposed "to ride to the rescue of states" that had borrowed billions of dollars from the federal government to continue to pay unemployment benefits during the economic downturn. His plan was to "give the states a two-year breather before automatic tax increases would hit employers, and before states would have to start paying interest on the loans." Many of the states had begun the recession with "too little money in their unemployment trust funds'" Those states "quickly ran through what little they had as unemployment rose and remained stubbornly high month after month. With their own trust funds depleted, 30 states borrowed $42 billion from the federal government to continue paying unemployment benefits." These states were facing an estimated $1.3 billion in interest payments to Washington due in the fall of 2011. The President’s proposal also included raising the minimum taxable wage base from $7,000 to $15,000 in 2014. "The rate of the federal portion of the unemployment taxes would then be lowered, so the proposal would not raise federal taxes on states that do not owe the federal government money. But it would speed the rate at which states that do owe money repay the federal government, and allow states to collect more unemployment taxes to rebuild their trust funds if they do not lower their tax rates." By February, 2011, eighteen states had already raised their minimum taxable wage base to $15,000 or more, according to the National Association of State Workforce Agencies. Iris Lav, an adviser at the Center on Budget and Policy Priorities, said that the unemployment system was “a constellation of problems" that needed to be solved." She added that the near-term problem was the economy, and "both the interest payments and the principal repayments are [were] cutting into employers, and it [made] great sense to postpone them." The larger question was how to "get states to solvency.”[1]
Analysis of the proposal:
The proposal itself makes sense from the standpoint of getting thirty states out of a tight fix at the time. The debate on whether taxes should go up in 2011 or 2014 was less important than attention to the larger structural fault-lines, which are only hinted at in the President's proposal to ease up on States in debt at the time due to their participation in the unemployment compensation system. To be sure, it is important to note that having extended the length of unemployment-compensation's term to cover the length of the recession following the financial crisis of 2008 required either higher taxes or more debt. Both Reagan's and (George W) Bush's tax cuts had not paid for themselves, so a tax cut, especially during the severe recession, would not have covered the bill. What is good for people and companies facing high tax bills is not necessarily in the public good, and thus good public policy. Even so, I want to stress the larger structural fault-lines that are implicit in the President's proposal, for subterranean tensions rarely reach the surface of a society's consciousness.
First, under the proposal, the "rescue" was to be limited to the states' respective debt from paying unemployment compensation; neither the Federal Reserve nor the U.S. Government would have been able to come to the rescue of the states concerning their entire deficits and debt. In fact, due to the "crowding out" tax effect, the more that the U.S. Government takes in, the less the state governments can politically raise taxes to cover their respective deficits and debts. Moreover, implicit in the notion of coming to the rescue of is the dependence or lower position of the rescued. In a viable federal system, neither the federal government nor state governments is subservient to the other, for otherwise both could not serve in the systematic role as a check on power.
Perhaps the "cooperation," or intermixing, of the two government systems (that of the states and that of the federation) in the unemployment system is problematic because it gives the U.S. Government a way to dominate the states. According to Jacobs and Karst, “It is the preservation of the balance between the central authority and the constituent states that is the essence of federalism.” Yet, “[i]n the American federal structure the central authority is stronger."[2] Rescuing thirty states attests to the overweening power of the federal head, and thus the imbalance that is so problematic in the long term to a federal system of checks and balances.[3]
Ken Wheare claimed in his text, Federal Government, that maintaining at least one autonomous domain for the states is sufficient for a viable federal system of dual-sovereignty. I disagree; a state with one power and otherwise "surrounded" by a federal government with many is not de facto semi-sovereign even if so de jure. In his text, Wheare's statement is utterly inconsistent with his other contention that the two systems of government in a federal system must be able to act as a check on each other. Balance is simply not possible if the state governments have only one or even a few areas of sovereignty whereas the federal government has many and can even pre-empt states from legislating in an area in which the federal legislature has no intent to play an active role legislatively!
To the extent that President Obama's proposal was debated in terms of rescuing the thirty states and whether to raise taxes in 2011 or 2014, the discourse failed the opportunity to include the broader questions pertaining to what is necessary to preserve the American federal system; the superficial debate meant blindly sitting by once again while the political consolidation of a diverse continent proceeded full throttle ahead to a "one size fits all" federation. The building pressure from the unaccommodated natural diversities would go on, likely to explode one day.
Perhaps the "cooperation," or intermixing, of the two government systems (that of the states and that of the federation) in the unemployment system is problematic because it gives the U.S. Government a way to dominate the states. According to Jacobs and Karst, “It is the preservation of the balance between the central authority and the constituent states that is the essence of federalism.” Yet, “[i]n the American federal structure the central authority is stronger."[2] Rescuing thirty states attests to the overweening power of the federal head, and thus the imbalance that is so problematic in the long term to a federal system of checks and balances.[3]
Ken Wheare claimed in his text, Federal Government, that maintaining at least one autonomous domain for the states is sufficient for a viable federal system of dual-sovereignty. I disagree; a state with one power and otherwise "surrounded" by a federal government with many is not de facto semi-sovereign even if so de jure. In his text, Wheare's statement is utterly inconsistent with his other contention that the two systems of government in a federal system must be able to act as a check on each other. Balance is simply not possible if the state governments have only one or even a few areas of sovereignty whereas the federal government has many and can even pre-empt states from legislating in an area in which the federal legislature has no intent to play an active role legislatively!
To the extent that President Obama's proposal was debated in terms of rescuing the thirty states and whether to raise taxes in 2011 or 2014, the discourse failed the opportunity to include the broader questions pertaining to what is necessary to preserve the American federal system; the superficial debate meant blindly sitting by once again while the political consolidation of a diverse continent proceeded full throttle ahead to a "one size fits all" federation. The building pressure from the unaccommodated natural diversities would go on, likely to explode one day.
Second, the fitness of the unemployment-compensation system itself, being limited to helping the unemployed for discreet periods often shorter than a recession, is not touched on in the proposal. For instance, the X-weeks limit of compensation as the program's default could have been addressed, as it treats "convenient" things like food, rent and utilities as though they were optional commodities that could be skipped after the Xth week on unemployment-compensation. In short, the matter of necessities being conditional warranted debate because of the underlying assumption that the very survival of a human being is (or should be) conditional. Doubtless it is in Hobbes' state of nature, but even he accepts a right of self-preservation even under a Leviathan. In other words, the natural urge to preserve oneself is not conditional, so a conditional government program covering basics is not natural or in sync with human beings.
Relying exclusively on business to bring an economy to full employment is problematic in that that goal has rarely been achieved anywhere without government to pick up the slack. From the standpoint of survival as a human right, laissez-faire economics is thus insufficient. To be sure, the recognition of survival as a human right, as is the case in the E.U., requires higher taxes than are necessary in simply treating survival as a conditional matter. This broader debate and thus the broader fault-line are typically ignored as Americans debate incremental or temporary changes in legislative or executive proposals bearing on public policy.
Relying exclusively on business to bring an economy to full employment is problematic in that that goal has rarely been achieved anywhere without government to pick up the slack. From the standpoint of survival as a human right, laissez-faire economics is thus insufficient. To be sure, the recognition of survival as a human right, as is the case in the E.U., requires higher taxes than are necessary in simply treating survival as a conditional matter. This broader debate and thus the broader fault-line are typically ignored as Americans debate incremental or temporary changes in legislative or executive proposals bearing on public policy.
1. Michael Cooper and Sheryl Stolberg, "Obama Plans to Rescue States with Debt Burdens," The New York Times, February 8, 2011.
2. Jacobs, Francis G. and Kenneth L. Karst, “The 'Federal' Legal Order: The U.S.A. And Europe Compared A Juridical Perspective,” in Integration Through Law: Europe and the American Federal Experience, Mauro Cappelletti, Monica Seccombe, and Joseph Weiler, eds., Vol. 1, Methods, Tools and Institutions. Bk. 1, “A Political, Legal and Economic Overview” (Berlin: Walter de Gruyter, 1986), pp. 169-244, p. 171.
3. Skip Worden, Essays on Two Federal Systems: Comparing the E.U. and U.S., and American and European Federalism: A Critique of Rick Perry's "Fed Up!"
