No precedent for state leadership in redistribution—lit base is about the feds

Both states and the federal government have tools that can influence inequality. Explicit redistribution via taxes and transfers is the mechanism that typically comes to mind when thinking about government’s influence on inequality, and this may have caused analysts to discount the role of states in the distributional process since state tax systems are less progressive and states maintain little or no independent welfare state. The activity of the federal and inactivity of state governments in explicit redistribution has been explained from a functional or competitive federal-ism standpoint. The two main economic activities of government are development and redistribution(Peterson 1995). Because the federal government is relatively inefficient at providing developmental policies, and the states are inefficient at providing redistribution, the federal government does more of the latter and subnational governments more of the former (Peterson 1995). This perspective on differing policy responsibilities is seen in studies of competitive federalism, with states limiting redistribution to avoid being a ‘‘welfare magnet’’ (Bailey and Rom2004). Perhaps not surprisingly then, studies find that state welfare effort has little impact on inequality(Barrilleaux and Davis 2003).If redistribution were the only mechanism avail-able to influence distributional outcomes, then the states would likely play a minor role in shaping income inequality. Kelly (2005, 2009) argues, how-ever, that government influences the distribution of income via ‘‘market conditioning,’’ by affecting a variety of decisions made in a market context, prior to redistribution, including the decisions that employers make about how much to pay their employees. For example, governments can make it easier to form unions, enabling workers to capture more corporate profits, reducing inequality. So it is mistaken to think that there is an abstract ‘‘market,’’ separate from government, producing an income distribution to which the government must then respond. There is evidence that national inequality is affected by government via both redistribution and market conditioning (Hacker and Pierson 2010; Kelly2005, 2009). Thus, it is important to consider the ability of state-level politics and policy to influence market outcomes. States have the authority to make policies in education and economic development (Witko and Newmark) and share responsibility in other areas, like labor regulations, that can condition the market. Previous studies at the state level do not distinguish between pre- and post-redistribution income, but this distinction may be important since state redistributive efforts appear to have little ability to reduce inequality(Barrilleaux and Davis 2003), and some policies examined in previous studies probably condition the market rather than redistribute income (e.g., Langer2001). Also, though states may have a limited will to redistribute, they do have some authority in federalized welfare programs (Bailey and Rom 2004;Plotnick and Winters 1985; Soss et al. 2001), and federalism and American inequality415managers can use discretion to expand or contract the scope of programs (Jacoby and Schneider 1996).Despite these important tools, the federal government appears to have a greater capacity to influence distributional outcomes. The major post-War reduction in inequality in the United States was spurred by changes in national policies and politics, not through the policies of individual states. The ability to create uniform policies affecting all citizens, the superior ability to tax and spend, and control over monetary and trade policy are just some of the tools not available to states. From a functional federalism perspective, then, the federal government should take the lead in fighting economic inequality, and between the New Deal and Great Society it clearly did. By the early 1980s, however, explicit federal government efforts to reduce economic inequality began to wane.