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Nationwide, the U.S. economy added 4.5 million jobs in 2022, the second-strongest year for job growth in the past 40 years (after 2021), and a testament to the success of pandemic relief and recovery measures. Although the private sector has recovered quickly, public-sector employment—particularly in state and local government—remains weak. With billions of dollars in relief funds for state and local recovery yet to be spent, this is a once-in-a-generation opportunity to reimagine and rebuild the public sector. State and local lawmakers should seize it. The economic recovery since 2020 Private-sector employment has largely returned to pre-pandemic levels across the country, except for the leisure and hospitality sector, which faced large job losses and remains 5.5% below February 2020 employment levels. The professional and business services industry—which includes professions like accounting, research, and legal services—has surpassed pre-pandemic employment in all regions, with exceptional growth in states like New Hampshire (16.9%), Montana (14.0%), North Carolina (12.7%), Colorado (11.5%), and Texas (10.8%). Meanwhile, the public sector has seen much slower progress. State and local government employment is still 2.3% below pre-pandemic levels as state agencies, school districts, and local governments have struggled to fill vacancies—a result of low pay, cuts to benefits, increasing demands, and other factors. More than half of the remaining jobs shortfall is in public education jobs, a long-standing shortage exacerbated by the pandemic. Since February 2020, only four states and D.C. have fully restaffed state and local government jobs—Idaho (+2.1%), D.C. (+1.7%), North Dakota (+0.7%), Oregon (+0.2%), and Maryland (+0.2%). Meanwhile, large public-sector jobs losses have occurred in several states, with New Hampshire (-8.3%), West Virginia (-7.2%), Hawaii (-6.9%), Louisiana (-6.9%), and Ohio (-5.8%) having the largest percentage declines. State and local government employment saw very slow growth in 2022 Over the past year, specifically, state and local government employment has grown modestly but still lags private-sector job growth. Between December 2021 and December 2022, total nonfarm employment grew by 3.0%, driven mainly by employment gains in the leisure and hospitality (6.3%) and education and health (4.0%) industries. However, state and local government employment grew by only 1.6% over that period. Figure A illustrates year-over-year job growth across all 50 states and D.C., with special attention paid to professional and business services, leisure and hospitality, and state and local government. In leisure and hospitality, employment grew by more than 10% in D.C. (14.0%), Texas (11.3%), Hawaii (11.0%), and New Jersey (10.4%), but shrank by 0.5% in Alabama and Rhode Island. The South and West regions experienced the largest employment gains in 2022. Texas (5.0%), Florida (4.8%), Oregon (4.2%), and North Carolina (4.1%) saw the largest increases in total nonfarm employment over the year. In Texas, Florida, and North Carolina, employment growth was highest in leisure and hospitality, while in Oregon, leisure and hospitality growth was second only to construction. Oregon was the lone standout for state and local government employment growth in 2022 (5.3%)—no other state surpassed 4% growth and two states saw declines (Mississippi and Montana).

Where monetary policy has indirectly regulated the value of worker earnings with geographically divergent effects, centralized fiscal policy had traditionally worked to fill gaps and generate national economic convergence. From the New Deal through the Johnson administration, direct federal job creation paired with centralized economic development planning and place-based industrial policy leveled out poorer and richer regions and reduced income inequality nationally.199 But beginning in the Nixon administration, and then more fully in the Reagan administration, New Federalism and neoliberal employment policies dismantled federal job guarantees and place-based anti-poverty and industrial policy programs in favor of a decentralized patchwork of block grants for anemically-funded training and welfare programs directed through states. Workforce development has since been governed by local officials and private employers with scarce oversight, minimal federal standards, and limited to no institutionalized worker representation. The resulting fiscal policy initiatives neither track nor attend to divergent increases in employer monopsony that disproportionately impact employment and earning outcomes in rural and distressed communities.

Climate change policy presents a complex and contested set of problems requiring independent assessment. The papers in this issue of Review of Policy Research focus in part on the politics of multilevel governance, i.e., where policy outcomes result from the interaction of nested public authorities of ever-increasing jurisdictional scope, from the local shire to the global order. The emphasis here is mainly on domestic politics, intertwined with international relations and global governance. One of the main themes has been the implementation (or not) of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCC) and what comes after Kyoto. Kathryn Harrison and Lisa Sundstrom point out that much of the political science on climate change issues has been focused on international relations, but more recently analysis has begun to include domestic politics (2010, pp. 2–4). This more recent inquiry seeks not only to explain better, perhaps, the results of international relations––why, for example, the United States has not ratified the Kyoto Protocol, but also to explain (and to propose) policy options and outcomes arising from the detailed implementation of international agreements. Political scientists have also been examining the local, regional, and national roots of state and civil society discourse and action on climate change issues. The papers in this issue came together because of two converging interests. First is that for several of the most important international players on climate change policy, one must take full account of the multilevel and/or federal nature of their domestic polities where they are a prominent feature. This is certainly so for the European Union (EU),1 the United States, Canada, and Australia, which these papers address. Second is that comparative federalism is an area of intrinsic interest on its own, whether one is comparing two, a few, or the entire set of federal-type systems around the world. I offer here comments on this theme, concerning what the study of comparative federalism can contribute to climate change policy, and then focus on the specific significance of the actual comparative set developed in these papers as well as on the papers themselves and what they suggest for federalism issues. The Value of Comparative Federalism Public interest in federalism exploded after the end of the Cold War (Elazar, 1994; Hueglin & Fenna, 2005). As part of a trend toward increased democratization, many countries revived their federal roots or adopted new federal institutions (e.g., Brazil, Argentina, Mexico, Russia, South Africa, Spain, United Kingdom, Belgium), and even in long-established federations, reform of federal arrangements has been a prominent feature of their domestic politics (e.g., Germany, Switzerland, India, and Canada, among others). And of course, the EU, particularly since the Maastricht Treaty of 1992, has been operating as a federal-type system, in the process creating many intriguing hybrid forms of power sharing. Out of these significant political developments has arisen a rich new literature on comparative federalism.2 Scholars of federalism tend to specialize, as if federalism itself was not enough of a specialty. Among the most prominent aspects of federalism that have merited significant attention, one may list the following: federal theory; federal society, i.e., the underlying social diversity that federal-type power sharing arrangements seek to manage and preserve; constitutional and treaty law; fiscal arrangements; and the design and practice of executive, legislative, and judicial institutions reflecting federal principles, including intergovernmental relations. To this list, one might also include a sixth topic: that of specific policy fields and how they are affected by federalism (health care, economic development, environment, and so on). To claim that all aspects of federalism studies have some relevance to climate change policy may seem rather grand. Nonetheless, a great deal of the field is relevant, as will be demonstrated here and in the other papers in this set. Federal scholarship adds value to the study of climate change precisely due to the nature of the problem. Assuming one accepts that there is global warming due to the emission of “greenhouse gases” (GHGs), with resultant harmful climate change, the task of reducing or even of stabilizing GHG emissions presents by now a very familiar case of collective action problems. No one country can solve alone the problem of global emissions as those emissions originate from anywhere on the planet. Moreover, economists and others have demonstrated that the benefits of GHG emission reduction are diffuse and long-term compared with the costs, which are concentrated and immediate. These collective action issues have of course been a key puzzle for some years in international relations theory and practice. The key issue has been whether institutions and norms of global governance can overcome the independent prerogatives of states to effectively achieve a regime of GHG mitigation. International relations theory acknowledges that nation-states have the same collective action problem internally, but authority is usually assumed to be unified. Federal studies would recognize that in reality, the domestic authority of nation-states is often divided and overlapping but that federal arrangements offer a rich array of norms, institutions, and practices for dealing with a mixture of sovereignty and interdependence. Many matters dealing with the environment are intrinsically multilevel, none so much as climate change. Because GHG emission as a phenomenon is global, it is of legitimate interest to international governance agencies, let alone national governments. However, the sources of GHGs could not be more locally and regionally specific, involving such matters as land use, resource exploitation, energy production, and urban and transportation systems––all of which entail local, regional, and national policy, including regulation. In federal systems, the policy instruments for climate change are significantly divided and/or shared for the very reasons that federal arrangements exist, to allow for the coexistence of local and regional diversity with “national” or wider community unity. Where coordination is loose, and essentially provided by the interaction of independent policy actors in various jurisdictions, this encompasses what has been called “competitive federalism,” which can mean direct and indirect competition among the constituent units in a federation (states, provinces, etc.) and between them and the federal or central government. Tighter coordination can be achieved in federations where cooperative mechanisms are highly developed or where centralized action can be justified (more on this later). In sum, federal theorists and advocates would argue that two of the key tasks of climate change policy, GHG mitigation, and adaptation to global warming effects are not only more likely to be achieved through the power sharing arrangements of federal states but done more sustainably (in a political sense) and more effectively as well.3 However, this is a proposition not only to be theorized but also to be tested. Comparative federal research can illuminate at least four further aspects of the climate change policy puzzle, each one of which merits brief discussion. First, as just outlined, it is important to understand the precise multilevel nature of the problem and how and what different levels of governance can actually contribute to policy solutions. There is a burgeoning literature on local initiative, subnational and national competition, and the effectiveness of supranational governance on climate change, but no satisfactory theory of the whole.4 Second, the domestic politics of GHG emission are rooted fundamentally in the political geography and economy of emission sources. The carbon-intensive industries are often regionally concentrated, both in an international sense and in a subnational sense. How to overcome the political divisions of specific regional interests is a key task of federal polities. Third, values and beliefs concerning climate change, and from them policy norms and tolerances, can also differ significantly according to the nature of economic and social development within a country, as well as territorial, national, and ethnic or linguistic differences. How climate change issues are variously framed and discussed within federal societies and how these differences in political culture are bridged merits considerable exploration. Finally, as hinted earlier, there is the nature of the intergovernmental policy coordination challenge posed by climate change. In other words, a key question to be addressed is where legal or policy responsibility is divided or shared, what policy outcomes are required of intergovernmental relations and what are some promising ways to achieve them?

State and local governments long have been considered “laboratories of democracy” that spawn valuable innovation. But recently states have taken this a step farther entering a risky new phase that pits blue states against red ones and blue cities against red states, and threatens democracy as a whole. As opposed to tolerating policy experimentation by different jurisdictions, some leaders are seeking to impose their own policy views on other places. Taken to an extreme, this behavior likely would intensify conflict and escalate policy nullification on a broad scale. Take, for instance, the recent intensification of arguments over immigration. Governors Ron DeSantis of Florida and Greg Abbott of Texas have bussed unwanted arrivals from the southern border to New York City, Washington, DC, and Martha’s Vineyard as a way to express their discontent with national policy. These leaders are upset over so-called “sanctuary cities” that are pro-immigrant and seeking to attract media attention to their cause. While successful at generating press coverage, this confrontational stance puts innocent people in the middle of policy disputes and disrupts social service delivery in the targeted states. Another area is abortion policy where the Supreme Court reversal of Roe v. Wade turned that issue back to the states and transformed the politics of that subject. A number of states used that decision not only to outlaw abortion but to criminalize actions that provided help for those wanting abortions. The stark differences in how state legislatures have responded to the Roe aftermath suggests federalism is moving in a destructive direction and putting states on a collision path with one another. Similar issues have popped in regard to marijuana legalization. For a number of years, that area has pitted states wanting to relax prohibitions and spawn new businesses against existing laws preventing interstate commerce involving illegal drugs or using the national banking system to transfer money. The resulting jurisdictional conflicts have strained federalism and made it difficult for businesses to know whose laws they should obey. And in the gun area, California recently enacted a law allowing people to sue those who make or distribute assault weapons. Modeled after Texas legislation that enabled lawsuits against those who aid women seeking abortions, the legislation demonstrates how states are turning on one another and restricting personal activity on a much broader scale than before. It no longer is enough for states and localities to take decisive policy stances, but rather they are aiming their enforcement against people living elsewhere who have different points of view. Even within individual states, there are risks for governance and democracy. Increasingly, there is preemption between red states and blue cities whereby Republican-controlled legislatures are putting major restrictions on the ability of Democratically-controlled cities to spend money, set policy, and address social issues. These within-state conflicts are eroding the capacity of cities to innovate and undertake useful policy experiments. By restricting local prerogatives, state legislatures are upsetting the balance of power within their boundaries and relegating cities to purely administrative functions. From these and other actions, it appears federalism is entering an intolerant terrain that threatens democracy itself. There is a power reshuffling that likely will have profound ramifications for questions of who decides and what they decide on many topics. Large-scale political and institutional shifts on abortion policy, immigration enforcement, gun safety, and marijuana legalization are rippling through many jurisdictions and eroding the traditional prerogatives of state and local government. In the past, trend-setting localities have piloted projects that experimented with new ideas and became models for the country as a whole. As part of our system of local rule, different jurisdictions had freedom to test policies such as welfare work requirements, school choice, and cannabis legalization, and that was considered a strength of American governance. Yet in recent years, federalism has entered a new phase. In my Brookings Institution Press book, Power Politics: Trump and the Assault on American Democracy, I argue the extreme polarization and radicalization that afflicts contemporary politics has recast federalism in an entirely different light. States are innovating in more polarized and extreme directions, and criminalizing behavior that is perfectly lawful in other places. Especially high given the fact that the Supreme Court has agreed to hear an elections case with the potential to alter how presidential elections operate. In a North Carolina lawsuit involving the primacy of state legislatures versus state courts in handling redistricting disputes, justices could make a decision that elevates the role of state legislatures in choosing Electoral College electors and scale back the ability of state courts to adjudicate future election disputes. The result could be legislature’s certifying elector slates for a candidate who has not gained the popular vote majority in that state. Such a move would generate considerable chaos in federal elections and usher in undemocratic practices that would weaken the popular vote and limit the ability of voters to hold leaders accountable. If these and other policy moves spread, what traditionally have been considered strengths of American democracy, i.e., the ability of states and localities to experiment, chart their own policy paths, and represent the views of people within their own jurisdictions, could shift in destructive directions. Rather than protecting democracy through tolerant and variated approaches, the differential responses of states and localities could intensify regional conflict and weaken the glue that holds the country together. Our current political system may not survive the high level of conflict which results when states nullify laws from other jurisdictions and criminalize behavior that is legal elsewhere.

Today, over two hundred interstate compacts are in operation.24 The prevalence of these compacts has boomed over the past century. Until the 1920s, states used them sparingly, mostly as a means to settle boundary disputes. But the 1922 creation of the Port Authority of New York and New Jersey—one of the most famous examples of interstate compacts—opened the door for the use of these compacts to tackle increasingly frequent and complex interstate issues.25 Since then, the number of interstate compacts exploded not only in number but in reach. Unlike the bistate agreements of the nineteenth century, many compacts today are regional, and roughly two dozen are national.26 Today, states are used to managing these arrangements: the average state is a party to twenty-five of these interstate agreements.27 The nature of compacts has expanded to cover all manner of political, social, and environmental issues. The majority of compacts established since the 1970s have served regulatory purposes, most often through the establishment of regulatory agencies.28 Recently, states have increasingly looked to interstate compacts as a more viable means of making progress on intensely partisan issues. In the face of federal inaction on tobacco, all but four states formed a compact to increase the price of cigarettes, which now yields billions in revenue each year.29 One notable success is the 2008 Regional Greenhouse Gas Initiative (RGGI), which, in response to federal inaction to curb rising emissions, created the first “mandatory, market-based CO2 emissions reduction program in the United States.”30 Under RGGI, the nine signatory states participate in a regional cap-and-trade program to limit CO2 emissions from the power sector.31 RGGI has operated for years without explicit congressional approval and has “claimed reductions in lifetime energy bills” of nearly $5 billion for 4.6 million residences.

Interstate compacts are legally binding agreements that states can enter into to take collective action to solve shared problems or enact a common agenda.6 States enter these compacts for various reasons—to address complex interstate policy issues like cross-border crime, to administer shared resources and boundaries like bodies of water, to establish common standards and guidelines like regulating carbon dioxide emissions, or merely to lower costs by taking advantage of economies of scale. Interstate compacts also allow groups of states to partner with the federal government to address national issues, like emergencies. These compacts give states the flexibility to pilot new solutions and adapt to challenges that emerge over time. They can also help states take advantage of their distinct capacities and build consensus towards greater collaboration.

The current Interstate Compact on Juveniles, a law adopted by all 50 states, is nearly 50 years old and has never been revised. A revision to this outdated compact has been drafted to resolve many of the problems currently being experienced across the country. Working with state legislators, juvenile justice practitioners, corrections officials, victims of crime, court administrators, and offices of state attorneys general, CSG is proud to be part of reshaping this important contract among the states.

The very nature of an interstate compact makes it the ideal tool to meet the demand for cooperative state action, to develop and enforce stringent standards, and to provide an adaptive structure for states that can evolve to meet new and changing demands over time. A distinctly American invention, interstate compacts promote multistate problem solving in the face of complex public policy and federal intervention. General Purposes Interstate compacts are contracts between states that carry the force and effect of statutory law. They are a tool for state governments to address regional or national policy concerns. Compacts are not a solution per se, but they allow a state to enter into a contract with other states to perform a certain action, observe a certain standard, or cooperate in a critical policy area. The law and use of interstate compacts is not particularly complex. Like any contract, the language of a compact needs to be identical in intent and context, if not in exact verbiage, between the states. Generally speaking, interstate compacts: • Establish a formal, legal relationship among states to address common problems or promote a common agenda • Create independent, multistate governmental authorities (e.g., commissions) that can address issues more effectively than a state agency acting independently, or when no state has the authority to act unilaterally • Establish uniform guidelines, standards, or procedures for agencies in the compact’s member states • Create economies of scale to reduce administrative and other costs • Respond to national priorities in consultation or in partnership with the federal government • Retain state sovereignty in matters traditionally reserved for the states • Settle interstate disputes1 History Compacts have been enacted for a variety of reasons, though they were seldom used until the twentieth century. Between 1783 and 1920, states approved 36 compacts, most of which were used to settle boundary disputes. But in the last 75 years, more than 150 compacts have been created, most since the end of World War II. Their purposes range from implementing common laws to exchanging information about common problems. They apply to a range of subject areas from conservation and resource management to civil defense, education, emergency management, energy law enforcement, probation and parole, transportation, and taxes.2 Article I, Section 10, Clause 3 of the U.S. Constitution laid the legal foundation for interstate compacts: “No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.” Compacts actually preceded the Constitution, having been used in colonial times to resolve boundary disputes between colonies. Most interstate compacts cover rudimentary functions, such as regulating boundaries and water rights, and have less then 15 signatories. For example, the Waterfront Commission Compact between New Jersey and New York regulates the practices in handling waterfront cargo in the Port of New York. Illinois and Missouri cooperatively planned the development of St. Louis through the Bi-State Development Agency Compact. Some compacts authorize the establishment of multistate regulatory bodies. The first and most famous of these is the New York Port Authority, which arose from a 1921 compact between New Jersey and New York. Other agreements are simply intended to establish uniform regulations without creating new agencies.3 Before the 1920s, interstate compacts were typically bi-state agreements, addressing boundary disputes and territorial claims. It is only in this century that interstate compacts have risen to such prominence and power among the states. States regularly developed and entered into interstate compacts until the late 1970s. Then, in the early 1980s, the use and formation of interstate compacts came to an utter standstill. In recent years, compacts have grown again in scope and number. Today, most are designed for regional or national participation. Examples include the Emergency Management Assistance Compact (adopted in 46 states and two territories; designed to enable cooperative emergency response efforts, such as 9/11), the Interstate Compact for Adult Offender Supervision (adopted in 48 jurisdictions since January 2000; designed to update and replace a similar 1937 compact), and the Interstate Compact for Education (adopted in 46 states; designed to serve as an information center, forum, and advocate for the states on education issues). Other recent compact developments include the Interstate Compact on Industrialized/Modular Buildings and the Interstate Insurance Receivership Compact.’

Federalism is making a comeback in the United States. The federal government is both unwilling and unable to solve many urgent social problems. State governments, unsurprisingly, are constantly looking for alternative solutions to interstate issues when Congress fails to act. Recently, several U.S. states, along with Mexican states and Canadian provinces, decided to act without federal approval to address the most pressing of all social issues-climate change. The Western Climate Initiative (WCI) was formed when the governors of five western states agreed, in a "memorandum of understanding," to work together informally to address climate change in the face of congressional gridlock. The WCI now consists of twenty-seven North American governments and includes almost one third of the North American economy. 2 The WCI is "a collaboration of independent jurisdictions working together to identify, evaluate, and implement policies to tackle climate change at a regional level." 3 By 2012, the WCI members will implement, through independent legislation in each member jurisdiction, a fully operational cap and trade program which will heavily regulate all sectors of the economy within the WCI member 4 jurisdictions.

In light of the current limits at the local and federal level, there is an opportunity for state governments to explore ambitious, publicly-funded cash transfer policies that: promote dignity and greatly improve the lives of their low-income residents; add to a growing body of research with assessments of larger scale positive impacts across geographically and racially diverse areas; utilize the revenue raising powers of state government; and could be a model for a permanent federal program. We need a permanent federal guaranteed income, but political gridlock and polarization threaten to frustrate attempts at a federal program in the immediate term. States have an opportunity to push closer to that ideal with large scale, publicly funded, permanent programs of their own that will provide essential data and experience toward the realization of a federal program. This guide seeks to arm state-level advocates and policymakers with information regarding the choice points in program design, the positive impacts shown by existing research, and special considerations for states including options for guaranteed income implementation, interactions with existing public benefits programs, opportunities for public funding, and promoting racial equity.

The correct term for state push-back against the feds is interposition. James Madison first applied that word to state constitutional checks on federal power. Interposition is built into our constitutional system. I’ve been advising state officials on interposition for nearly 30 years. In 2016 I examined the topic in a Heartland Institute issue paper (). This essay summarizes some of the paper’s conclusions and adds further observations. The methods of interposition range from very weak to the strongest possible constitutional approach. Several methods overlap, and state officials can use any or all of them. But some forms don’t always work and some backfire. Educational Methods One educational device is a state legislative resolution condemning some aspect of federal overreach. During the Clinton years, several state legislatures adopted “Tenth Amendment Resolutions.” The first of these, passed in Colorado in 1994, included the following language: “Be It Resolved … That the State of Colorado hereby claims sovereignty, under the 10th Amendment to the Constitution of the United States, over all powers not otherwise enumerated and granted to the federal government by the United States Constitution. “That this Resolution shall serve as Notice and Demand that the federal government, as our agent, is hereby instructed, effective immediately, to cease and desist, any and all mandates that are beyond the scope of its Constitutionally authorized powers.” This “Notice and Demand” was toothless, and federal officials ignored it. Sometimes even state officials ignore a legislative resolution. In 2011, the Montana legislature unanimously adopted a resolution opposing the Real ID program. Montana’s executive branch continued with the program, and the legislature eventually backed down. I believe the time for passing mere resolutions is long past. Whatever educational value inheres in them also inheres in more efficacious measures. Lobbying Congress State legislative resolutions memorializing Congress on federalism issues are one form of lobbying, but Congress figuratively consigns them to the circular file. In 1995, Michigan Gov. John Engler made it more personal. He camped out in congressional lobbies promoting a bill curbing federal mandates. He had some success. However, that was 26 years ago, when Congress was controlled by a new GOP majority eager to scale down federal excess. I don’t consider state lobbying efforts to be worth much today, except perhaps in moderating bad legislation that’s going to pass anyway. Judicial Challenges States have sued the feds repeatedly in recent years. States’ most significant victory probably was persuading a 7–2 Supreme Court majority to strike down Obamacare’s mandate that all states expand their Medicaid programs. A carefully considered judicial challenge is often worth the time and expense. But victories are rare and often narrow in scope. Litigation can be very slow. The Supreme Court upheld the remainder of Obamacare only because it was supported by a “tax” designed to force citizens to buy government-approved health insurance. Yet Congress repealed that “tax” four years ago, and by the Supreme Court’s logic, Obamacare should have collapsed. But litigation continues and the feds continue to force Obamacare on us—driving up costs, spreading arteriosclerosis throughout the medical system, and depriving states and families of health care freedom. Coordination Among States Interstate coordination is old, tried, and true: The first convention of American colonies was held in 1677 and the most recent convention of states met in 2017. There have been about 40 in all. The basic procedure is that a state calls a convention to consider a common problem, other states agree to attend, and the state delegations meet to consider the issue and propose a solution. Since the 1960s, conspiracy theorists have attacked interstate conventions on specious, often ridiculous, grounds. For example, in 1994–95, Nebraska Gov. Ben Nelson, a Democrat, and Utah Gov. Mike Leavitt, a Republican, proposed an informal “conference of the states” to explore common responses to federal mandates. Conspiracy fans claimed the proposed conference could become a “constitutional convention” that might stage a coup d’ état! As absurd as their claim was, it gave lukewarm lawmakers in many states an excuse to avoid participating. Fortunately, in these days of teleconferencing, in-person consultations usually are no longer necessary (except for constitutional amendment purposes; see below). In addition, several national organizations of state officials regularly meet to facilitate communication. These groups include the American Legislative Exchange Council (ALEC) and the National Conference of State Legislatures (NCSL).

Interstate Compacts Can Powerfully Coordinate Collective State Action

As their proliferation suggests, interstate compacts are a powerful tool for exerting state sovereignty. Each state to a compact has the power to enforce the compact through the remedy of specific performance because the enforceability of compacts is guaranteed under the Contracts Clause and an exception to the rule that one legislature cannot bind future legislatures.425 Thus, the coordinated action that interstate compacts make possible could exponentially increase the effectiveness of all the tools discussed previously by enabling a unified front among the states and by helping overcome collective action problems

Cooperation Through Interstate Compacts The states enter into interstate compacts (i.e., contracts) to administer a of services, such as infrastructure, water allocation, environmental protection, natural resource conservation, and interstate parks. An illustration is the Palisades Interstate Park Compact (), entered into between New York and New Jersey to administer a sprawling and beautiful park in the Hudson River Valley. In theory, states can use compacts to “interpose” against federal power. As just noted, for example, the Western water compacts were adopted to forestall federal interference. Similarly, a group of states might enter a compact pledging that none of them will allow state employees to enforce an overreaching federal law.

The United States Federal Government is established by the US Constitution. The Federal Government shares sovereignty over the United Sates with the individual governments of the States of US. The Federal government has three branches: i) the legislature, which is the US Congress, ii) Executive, comprised of the President and Vice president of the US and iii) Judiciary. The US Constitution prescribes a system of separation of powers and ‘checks and balances’ for the smooth functioning of all the three branches of the Federal Government. The US Constitution limits the powers of the Federal Government to the powers assigned to it; all powers not expressly assigned to the Federal Government are reserved to the States or to the people.

As the federal bargain moves in the direction of state power, it will have far-reaching consequences for the United States’ global profile and the conduct of U.S. foreign policy. Harnessed in the right way, the states can enhance U.S. power, providing new and more dynamic ways to advance an international agenda at a time of federal gridlock, while strengthening U.S. democracy at home. But as the  crisis illustrates, states can also be used to undermine the country’s longstanding alliances or even to subvert the democratic process. How leaders in Washington, the courts, diplomatic circles in different regions, and local and state governments approach this shift will determine whether state-level action becomes a source of resilience or a destabilizing force for Americans and the world.

THE EVOLVING FEDERAL BARGAIN

If the federal government does enact a broad based sales tax, it will probably choose the VAT over the RST. The works of John Due, Charles McLure, Sjibren Cnossen, Ben Terra, Alan Schenk, and many others have laid the groundwork for such an eventuality. Also, the tides of history presently run in favor of the VAT. The recent enactments of VATs in Canada and Japan are the most obvious indicators of this fact.59 This being true, what effect would the adoption of VATs by the states have on the federal tax system? One can posit at least two divergent scenarios. It is possible that the states could head off the enactment of a federal VAT by staking out the VAT as their "tax turf." The states could be perceived as saying to the federal government that broad based sales taxation, whether VAT or RST, is their exclusive province. On the other hand, numerous state adoptions of the VAT could lead to widespread public acceptance of this hitherto little known form of taxation. This, in turn, could pave the way for public acceptance of a federal VAT. Which of these scenarios is more likely? It is uncertain. However, under either scenario the states would probably come out ahead of where they would be if the federal government adopted a VAT in an environment where there were no state VATs. This is because federal adoption of a VAT at a time when no state VATs exist might make it more difficult for the states to enact VATs of their own or even to enlarge the coverage of their existing RSTs.6

Both the VAT and the RST are suited to the Destination Principle. In theory, the RST is destination based since it is collected at the final point in the sales chain. However, since most RSTs permit some cascading, such as by taxing entrepreneurial purchases of capital goods, it is probable that exports from an RST jurisdiction are not entirely free of tax.5 2 This means that those exports will be at a competitive disadvantage vis-a-vis similar goods produced in a jurisdiction where such cascading is avoided.53 Still, one may say that for the most part the RST allows exports to leave the origin state free of tax. The VAT's compliance with the Destination Principle takes a different form from the compliance of the RST. This is because the multistage structure of the VAT means that exports will almost certainly have been subjected to some tax prior to shipment out of state. Thus, the VAT's compliance with the Destination Principle requires that the tax collected on goods and services prior to their export must be refunded, or some other mechanism must be found for freeing the goods from domestic VAT.M In the context of our federal system, refunds are the most likely approach unless we posit a scenario under which a large number of states all adopt a VAT within a short time of one another. In the event of multiple adoptions of the VAT, it is conceivable that some sort of clearinghouse system could be adopted in the form of an interstate compact.5 Such a clearinghouse system would avoid the necessity for refunds to the exporter by allowing him to deduct the VAT he paid from the VAT he collects (even though the VAT he paid was remitted to the exporting state's treasury and the VAT he collects is remitted to the importing state's treasury). Instead of making refunds to exporters, the exporting state would credit the account of the import state in the amount of the tax it collected prior to export. A simple example will serve to illustrate the clearinghouse system. Suppose Exporter Alpha, located in California, makes a sale to Buyer Beta, located in Delaware. Suppose further that Alpha had previously paid forty dollars of VAT on its product when it purchased that product in California. Suppose also that the Delaware VAT applicable to the sale to Beta is fifty dollars. Under the clearinghouse system, Alpha will collect the fifty dollar Delaware VAT but remit only ten dollars to the Delaware treasury (the excess of the fifty dollars it collected over the forty dollars it paid). Delaware will obtain the remaining forty dollars of the Delaware VAT from California. Since it is likely states will be both importers and exporters with respect to all other VAT states, actual cash payments would be minimized. Instead, each state will receive or pay only the net difference between the tax it collects on its exports and the tax it is owed on its imports.5 6 Obviously, such a system would involve elaborate bookkeeping. Ideally, it would operate with a single central authority keeping track of the balances in all of the states' accounts with one another. The interesting point about the clearinghouse approach, for present purposes, is the potential it possesses for addressing the National Bellas Hess problem. If an exporter can only recover the VAT he has already paid by deducting it from the VAT he collects from his buyer, then the mail order companies will have an economic incentive to collect the tax from their out-of-state purchasers. Thus, the VAT holds the potential for creating voluntary compliance among mail order companies in the collection of the VAT on their out-of-state sales.57 To summarize this somewhat lengthy section, both the VAT and the RST are largely compatible with the Destination Principle in the context of interstate sales. The VAT is somewhat more complicated to administer in the interstate sales context, but that complexity is manageable. Neither form of sales tax offers any particular advantage with respect to the neutrality problem posed by National Bellas Hess unless the clearinghouse approach is adopted by those states employing the VAT. However, the clearinghouse approach holds out the potential for voluntary compliance with the VAT by mail order companies in order to obtain the indirect return of the VAT they paid on their purchases.

The legacy of so-called “welfare reform” and decades of disinvestment have resulted in a social safety net that perpetuates racism and is fundamentally incapable of allowing people to meet their basic needs and live with dignity. It is time to boldly reimagine the social safety net, eliminate deep poverty and provide stability to middle income households by implementing a guaranteed income. Ultimately, a federal program should be vigorously pursued, but a mass movement needs to be built to overcome gridlock at the federal level. States have a vital role to play as leaders in building public policy. Through creation of state-level guaranteed income programs funded through equitably raised revenue, states can progress toward economic justice for their lowest-income residents regardless of employment status, supplement the existing safety net, and build necessary momentum toward a federal program needed to meet current and coming economic challenges. A guaranteed income is a direct and effective strategy to ensure that everyone can meet their basic needs and reduce unconscionable levels of income inequality. However, even wider disparities exist when it comes to wealth. Available data shows that guaranteed income allows people to save money, pursue additional education and training, and improve their employment situation, all of which can increase a household’s opportunity to invest and accumulate wealth, but states should strongly consider wealth building strategies that are more direct to complement a guaranteed income. One such model is baby bonds. The basic idea of a baby bond is that children in eligible families would have an initial deposit placed into a government managed trust that would guarantee growth of the investment until the child turns 18. Upon their 18th birthday, the child is able to access the money – which will have appreciated significantly – and, in most models, is limited to using it for specific purposes such as pursuing higher education, buying a home, or starting a business. However, states could adopt and modify such a policy, remove restrictions on how the money is eventually spent, and pair this asset building strategy with cash transfers like guaranteed income to produce even greater outcomes. In 2021, Connecticut became the first state in the country to pass a statewide baby bond program while state legislators in other states, like New Jersey, Iowa, and Maryland, have also introduced proposals.

Are basic-income policy proposals relevant at the state or local level? Alaska’s Permanent Fund Dividend illustrates how states can create dividends from sovereign wealth funds, or more directly from taxation of the use of common assets. But what about resource-poor states like Maine? Gary Flomenhaft (2012) calculated that even Vermont, also a resource-poor state, has enough resources that, if all the rents were taxed, and the revenue distributed as dividends, every citizen could receive between $1,900 and over $10,000 annually. Of course, clawing back these resources after having turned them over to private companies would face major political challenges. A more modest, partial basic income could be created at the state level in several ways. A state-level carbon tax, desirable as a way to reduce fossil-fuel emissions, could yield a significant universal dividend, and the dividend would rectify an otherwise regressive and unpopular consumption tax. A carbon tax with progressive tax reductions has been implemented successfully in British Columbia (Durning and Bauman 2014). The earned income tax credit, which exists at the state as well as the federal level, could be made refundable. That is, those without earned income would receive a credit, increasing their income when it falls below a minimum. It is unlikely that refundable tax credits or carbon taxes at the state level could be large enough to adequately address either the environmental requirements or the income needs, but policies at the state level can pave the way for more adequate policies at the federal level, when the political environment there becomes more favorable

They’re right, but there’s actually a better way of approaching the issue. Why not take all income-​redistribution programs, put them into a single block grant, and then transfer the money – and responsibility – to state governments? In an ideal world, the block grant would gradually diminish so that states would be responsible for both the collection and disbursement of all monies related to welfare. But that’s a secondary issue. The main benefit of this federalist approach is that you stop the Washington-​driven expansion of the welfare state and you trigger the creation of 50 separate experiments on how best to provide a safety net. Some states might choose a basic income. Others might retain something very similar to the current system. Others might try a workfare-​based approach, while some could dream up new ideas that wouldn’t stand a chance in a one-​size-​fits-​all system run out of Washington, DC. And as states adopted different systems, they could learn from each other about what works and what doesn’t work. And since it’s easier to influence decisions that are closer to home, taxpayers at the state level almost certainly would have more ability to impact what happens with their money. Moreover, there’s actually some evidence that this approach is practical. The 1996 welfare reform legislation isn’t a perfect analogy, but the core feature of that law was the elimination of a national entitlement and the provision of a block grant so that states could decide (with some strings attached) how to deal with poverty. By most measures, the 1996 reform was a success, with that it resulted in lower levels of welfare dependency and reductions in child poverty. This isn’t to say the 1996 law was ideal. The advantage of a comprehensive federalist approach is that policy experts can push states to experiment with different policies. And given the vast differences between various American states, it’s almost guaranteed that there will be lots of diversity. This diversity not only will inform policy makers about what works and what doesn’t work. It also will satisfy the libertarian desire to get Washington out of the business of income distribution, while presumably producing a system that actually does a better job of helping the less fortunate escape government dependency. In other words, all the advantages of the basic income plan without the potential system-​wide downsides.