Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. His column appears in Indiana newspapers.
The United States has always engaged in tax and spending structure known as fiscal federalism. This is common throughout much of the democratic world. In theory it means two things. First, each government collects and distributes tax dollars based upon the functions that are appropriate at their level. Second, higher-level governments share some taxes with lower-level governments for special purposes.
A pure example would be the federal government collecting taxes, which are then spent on national defense, which is clearly a federal government responsibility. The federal government may share some national defense dollars with states to maintain the National Guard, which could serve both as a federal army in times of war, and to provide support to states in emergencies.
The endurance of fiscal federalism is testament to its broad success over the past 241 years. However, there is growing tension over aspects of fiscal federalism that has nothing to do with tax policy. At the core of this is restriction on the use of federal pass-through funds for social policy. The most recent example is the transgender bathroom policy.
Now, to be clear, this is not a column about transgender bathroom policy. I wish to go on the record in support of permitting children to use the restroom in school. Moreover, it is clear that effective and respectful policies are already in place in the roughly 100 percent of Hoosier school corporations with transgender children. This is surely not within the competence of the federal government.
This cynical abuse of public financing policies, which date to the First Continental Congress, damages respect for the federal government. Regardless of what they think of the actual policies, all Americans should object to this type of politics. There is a small move afoot suggesting schools and other state agencies should decline any federal dollars in protest. This would be a colossal mistake for two reasons. The outcome to Indiana schools offers the best warning.
First, federal funding of local schools typically amounts to about 10 percent of the budget, more in poorer places and the three-quarters of Hoosier schools that are Title I eligible. Rejecting federal dollars would end most school lunch programs, all special education and strip away the incentives for math and science teachers. It would end most AP classes, cause the layoff of 5,000 plus teachers and place huge pressure to end the state’s private school vouchers. It would be most ruinous to poorer schools, and this would likely precipitate the closure of perhaps 50 rural high schools, and 100 elementary and middle schools.
Second, the federal government would simply send those Hoosier federal tax dollars to other states, strengthening political pressure elsewhere for the status quo. Rejecting federal education dollars because the current White House Administration is playing electoral politics, is myopic, self-destructive and evidence of especially raw ignorance about public finance.
The restoration of soundness to the way the federal government has been supporting state and local finances since 1775 is a compelling public policy matter for the Congress and a more reasonable president. Not Hoosier schools.