Fiscal federalism is the result of the states'
dependence on the national government for funds. Until 1913, the national government had
minimal monetary resources, thus possessing little control over the affairs of
the states. Once effected, the Sixteenth
Amendment resulted in the amassing of government funds on the national level.
This reserve of money enabled the national government to initiate a multitude
of national programs--such as the interstate highway--as well as provide grants
to the states. It is primarily through
these grants that the national government can exert influence over state
affairs; for, by designating restrictions in the distribution of these grants,
the national government can compel states and localities to make or alter
policies and legislation in accordance with its agenda.
The manner in which the national government
has wielded the influence of money throughout the history of the nation has
continually altered intergovernmental relations. Since the Depression, fiscal federalism has
caused the national government to dominate the states; recently, however,
reforms have begun to return power to the states.
Policies and precedents of the New Deal
centralized power in the national government.
To remedy the devastation of the Great Depression, it assumed a more
direct and prevalent role in the lives of the people. Congress passed the 1935 Social Security Act,
providing retired persons pensions and benefits for the unemployed and
disabled. In addition to Social Security, the government also established the
Federal Emergency Relief Administration in 1933 which provided states with
money for the needy. The Aid to Families
with Dependent Children (AFDC) program was state-administered and federally
funded, another example of state dependence on the national government. The Works Progress Administration is one of
the multitude of programs implemented to provide employment to aid in recovery.
Formerly a state responsibility, the
national government became
the primary
source for relief. The national
government broadened its powers in response to this crisis and began to
supersede the state governments in decision-making. As a result, the states began to relinquish
their power and defer to as well as depend on the national government. This increase in federal power did not exist
solely under Roosevelt's Depression-era administration but extended over to
later administrations as well.
The remainder of the century until the present
was marked by legislation limiting the states even further. During the Great Society of the 1960s,
Congress passed Johnson's proposals for increased federal aid to education--augmenting
federal control and involvement over education, a power reserved for the
states. Moreover, Congress passed
Medicare and Medicaid, health insurance plans for the elderly and the poor or
disabled, respectively, expanding the federal role in social welfare
programs. During Nixon's tenure,
existing programs of assistance for the aged, blind and disabled administered
by the states were federalized, requiring more money from the national
government. Additionally, general
revenue sharing was signed into law, once again increasing state dependence on
federal funds. Nixon's New Federalism
implemented major expansions of federal regulatory power over state and local
governments. Concerned about the
dominance of the national government, the reaction to this continual increase
in federal power and influence is a decrease in cooperative federalism.
The government has recently shifted its former
practices, creating legislation empowering the states. Through a series of tax-cutting,
budget-cutting and deregulatory initiatives, Reagan lessened the role of the
federal government in intergovernmental relations. Under his administration, general revenue
sharing was ended, further advancing the liberation of states and localities
from federal dominance. Clinton's
administration began a steady campaign in the devolution of power from
Washington to the states. States were
recently given greater flexibility in administrating AFDC; they now have wide
discretion in determining eligibility.
The welfare overhaul bill gives states greater control over awarding
benefits; policy will be determined largely by states and localities
themselves. There is increasing support
towards turning welfare, Medicaid and federal job programs over to the states,
which would independently establish criteria for eligibility and administer the
benefits. This would return the present
system of cooperative federalism to a more separate, dual system.
Throughout the twentieth century, it is evident
that the extent of the control exerted by the national government on the states
and localities is a direct result of the practice of fiscal federalism. An unprecedentedly severe economic downturn
caused the advent of cooperative federalism in intergovernmental relations, as
a national crisis requires the involvement of the national government to obtain
recovery. This involvement continued for
most of the century, continually increasing federal power as the national
government began to implement national regulation. Currently, intergovernmental relations are
more inclined to favor the states, as a power shift to states is being promoted
to reduce the size of the federal government.
The roles of the national and state governments continually change in
accordance with the state of the nation and the state of politics, and money is
also an integral factor in the evolution of intergovernmental relations. Thus, fiscal federalism has a prevailing role
in the shaping of the nation.
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