ObamaCare and the End of Fiscal Federalism

Democrats’ Take Over of Healthcare Jeopardizes Two Centuries of Legal Precedent

One of the strongest assets of our founders’ plan for limited government is the assertion that the United States of America are just that: a union of 50 separate governments all accountable to their own voters and responsible for the success or failure of their own choices.

In recent decades, this country has seen a population shift as people and businesses ‘vote with their feet’ to relocate from traditionally ‘progressive’ states to those with a more welcoming regulatory business climate that rewards growth and innovation. Manufacturing facilities previously sited in the Rust Belt are now located in ‘Right to Work’ states—if they remain in America at all—while state population forecasts predict that the states hemorrhaging people the fastest (Illinois, Iowa, Louisiana, Massachusetts, Michigan, New Jersey, New York, and Pennsylvania) are traditionally Democrat controlled.

At the local level, similar interjurisdictional competition is demonstrated whenever a young couple decides to start their family in the suburbs where taxes are lower, schools are better, and housing is of higher quality than those of the city. They see the possibility of living their lives without the transaction costs and arbitrariness of excessive regulation and redistributive taxation. States compete, as well, to receive these families with limited government and higher quality of life for less money. Businesses see the benefits of locating to states that have (for instance) low health care costs due to fiscally responsible legislation. Accordingly, the exit of the dissatisfied has long been a discomforting insult to those in charge of states that are losing population, who see the loss of residents as revenues being ‘taken away’ from their control.

However, the ideas of fiscal federalism and competition are severely hampered by the recently passed ObamaCare legislation that nationalizes the economics of health care provision in this country. Where states could previously make a claim for their competitive business environment, and attract new companies based on low health care costs for employers*, these competitive advantages are obliterated by federal payroll taxes that fund socialized health care regardless of state. Additionally, residents of high-cost Democrat jurisdictions (in which health care costs have skyrocketed due to ‘progressive’ conditions placed upon insurers and health care providers) are now able to obtain the same services for $750 a year, thus effecting a federal reward for poor state governance at the expense of health care innovator states that have kept costs down through tort reform and other means. In effect, ObamaCare ‘levels the playing field’ between states that have been administered competitively to attract business and new residents and states that have been administered poorly to maintain the high-cost Democrat status quo.


Supreme Court Justice Brandeis wrote in 1932 that “[i]t is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” States that have chosen the path of costly and regressive Democrat policies continue to lose population daily. The nationalization of health care choices (amongst other policy directives) represents their last chance to stem the tide of capital outflow from their political control. However, this new direction is not without cost. Residents of states that have thus far exercised fiscal responsibility to contain costs will now find themselves subsidizing states that have run themselves into the ground doing the opposite.

** State health care expenditures range from Washington, D.C., Massachusetts and Maine (both states have ‘public options’) at the high cost end to Utah, Arizona, and Idaho at the low end.




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