Domestic Priorities in Our Federal System
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Description
During the 1980 and 1984 presidential campaigns, debates about federal domestic policy have concentrated on defining the appropriate roles of the national and lower levels of government in raising revenues, in setting spending priorities, and in managing individual programs. In part, the discussion has been framed in moral and ideological terms. Largely, however, the focus has been on the relationship between federalism and economic efficiency, both allocative efficiency in the choice of levels and types of spending by public agents and private decisionmakers, and productive efficiency—the elimination of waste, fraud, and bureaucratic ineptitude. Choices made by the executive and legislative branches of government during the 1980s have substantially reduced the federal government's role as raiser of revenues and have significantly altered fiscal relations among levels of government. One major outcome of these fiscal choices has been the increasing prominence of the federal budget deficit—which, under current conditions, is both large and enduring. The need to deal with this large deficit will require Congress and the president to confront the options for making further cuts in the federal budget and more generally for reducing the scope of federal domestic activity. The magnitude of the deficit, now projected at some 5 percent of GNP for the next decade, provides special motivation for this book's examination and evaluation of the domestic portion of the federal budget, while changing federal and state fiscal relations motivate a detailed analysis of the domestic programs undertaken by federal, state, and local governments. The administration's New Federalism initiative is perhaps the best place to begin this discussion. The 1982 Reagan budget message suggested a "swap" of federal and state functions, with the federal government assuming control of Medicaid while relegating responsibility to the various states for food stamps and Aid to Families with Dependent Children (AFDC). At the same time, it was proposed that some sixty-one other federal programs in education, community development, transportation, and social services be returned to the states, with funding during the transition to be provided by a new federal trust fund. The intent of the administration's current proposals can be debated, but the discussion in this volume makes it clear that the New Federalism was motivated not by normative or efficiency notions about the appropriate locus of program responsibility but, rather, by a simpler motive—a perceived opportunity to cut the domestic federal budget. The administration had clear plans to reduce the Medicaid program once it came under federal control, and although the Reagan program involved a substantial federal (as well as state) government role, that role did not have direct budgetary consequences. Coupled with the strong stance taken by the Reagan administration on the New Federalism, the magnitude of the current budget deficit raises a number of issues of fact and interpretation: (1) Have the recent trends in the financing of programs by state-local governments and the transfer of fiscal responsibilities during the first Reagan term marked a move away from government spending, or simply a readjustment of program responsibility and financing from the federal to the state and local levels? In other words, is the new federalism simply an anti-government program, or does it represent a serious movement toward fiscal reform? (2) Should the role of the federal government in the regulation of the domestic economy be diminished? If so, should these regulatory and oversight functions be performed by lower levels of government, or should they be relegated to the private sector? (3) If domestic programs are to be further restructured in the interests of economic efficiency, how should that restructuring take place? If program changes are to be made, what opportunities for savings in federal budgetary dollars will arise? These and related issues have appeared and reappeared in the preceding chapters. In this brief concluding chapter we highlight some of what we have learned and add our own interpretation. We examine critically the notion of fiscal federalism and investigate reforms that would be consistent with federalist principles and would save budgetary dollars. A budgetary perspective on federal programs is a good starting point. Table 14.1 presents the 1983 federal domestic budget broken down by program area. Social security, by far the largest of the income security programs, is currently financed by a trust fund and raises a host of separate questions. In addition, specific campaign promises by President Reagan make it less likely that social security will be reevaluated during the president's second term. Given the domestic focus of our discussion, we ignore expenditures on national defense and consider net interest and veterans' payments to be "uncontrollables" (even though there are current proposals to cut back Veterans Administration health benefits). It is important to note that of the total federal budget of $820 billion, $216 billion goes to defense, space, and international affairs and $245 billion to social insurance. Net interest amounts to about $94 billion, and veterans' benefits to $26 billion. As a result, our scope for evaluation—the domestic portion of the federal budget not involving social security, veterans' benefits, and interest—totals approximately $239 billion.
Source Publication
American Domestic Priorities: An Economic Appraisal
Source Editors/Authors
John M. Quigley, Daniel L. Rubinfeld
Publication Date
1985
Recommended Citation
Quigley, John M. and Rubinfeld, Daniel L., "Domestic Priorities in Our Federal System" (1985). Faculty Chapters. 1869.
https://gretchen.law.nyu.edu/fac-chapt/1869
