The Funding of State and Local Governments: The Case for General Revenue-Sharing

The inherited pattern in the United States of funding of state and local governments mainly by taxation at their own levels is associated in much of the public mind with "local control."

This inherited funding pattern, however, has always had two great disadvantages:

1. There are vast inequalities in the public and social services delivered by state and local governments across wealthier and poorer regions and localities. These include large inequalities in expenditures per pupil in public education, which is an issue that in many states has been debated for decades with only uneven or little progress toward equality. This pattern means, further, that populations in economically depressed areas suffer the double disadvantage of extensive poverty and a poverty of public services, often where these are needed most.


2. Competition among the states to attract business locations means there is typically fierce opposition to increasing state-level taxation, because any state that does so can be at a significant disadvantage in attracting business locations, which can be crucial for achieving economic improvement. The business community and the Republican Party have perpetually hammered on this basic fact. The Democratic Party, on the other hand, has largely--though not wholly, in view of the many federal grants-in-aid programs--evaded this issue, because it has been either devoid of ideas or afraid to exercise political leadership by challenging present-day beliefs.

In the face of these realities, the optimum approach would be to move along a transition to funding of state and local governments mainly by general revenue-sharing out of the federal tax system on a population basis.

Unrestricted local control over the allocation of such funds, as distinct from the level of funding, could be preserved as a statutory right.

Such general revenue-sharing then would have two great advantages:

1. The funding of services delivered by state and local governments would be proportional to the size of the populations to be served, and would no longer have any connection with the wealth or poverty of given regions and localities.


2. The effect of inter-state competition to attract business locations in restricting the funding of services delivered by state and local governments would be circumvented altogether, for the tax level could be raised at the federal level with no disadvantage to any state in this inter-state competition.

Precisely for this reason, such a revamping of the American federal system would face intense opposition from all the forces demanding smaller government, including America's great business oligarchy.

The issue is what purposes ought to take priority.

Tobacco Promotion and the "Private-Enterprise" Doctrine

Given the effects of tobacco upon human health, U. S. public policy should aim, alongside education, to remove the promotion of tobacco products through their advertising.

This faces two basic obstacles:

1. The executives of the tobacco companies are hired and fired by shareholders interested in maximizing profits, and the tobacco industry is able to act powerfully in the political system against its opponents.


2. In the United States, the First Amendment adds a fundamental obstacle to regulation against advertising by a legal and privately owned industry, because tobacco companies can argue effectively that their advertising is constitutionally protected "free speech."

In the face of these obstacles, the most effective policy, in the United States, would be the nationalization of the share-rights in the tobacco manufacturing companies, the vesting of the exercise of these share-rights in the Commissioner of the U. S. Food and Drug Administration, and a statutory requirement that all net profits of the nationalized tobacco companies be used solely for public-health purposes related to tobacco, i.e. medical research, public education, and recouping of medical costs caused by tobacco products.

This approach would have several very large advantages:

1. The Commissioner of the U. S. Food and Drug Administration, through exercise of the share-rights, could set general policies, geared to public health, without the government being involved in the details of company management. These general policies could then include the further points below:


2. All advertising by the tobacco companies, through all channels and strategems, could be ended.


3. The threat by the tobacco companies to invoke the First Amendment against restriction or prohibition of advertising would be circumvented altogether. The government could exercise its own property rights to impose whatever policies it saw fit.


4. The entire problem of resistance from executives responsible to private shareholders, and political resistance orchestrated by a private industry, would be removed.


5. All advertising at the retail level could be ended, without the costs and difficulties of enforcing regulations upon millions of private retailers, for one of the general policies could be to channel tobacco products exclusively through a network of government-operated retail outlets, in line with the system long used by some states for retailing of liquor. These outlets could then include educational videos showing effects of tobacco upon lungs and facial effects of surgeries for throat and mouth cancers. A few pictures can be worth a thousand words of exhortation, against skeptical youth and adults.


6. All export of tobacco products could be ended. There is no moral difference between international traffic in hard drugs and knowingly exporting for profit tobacco-induced cancer, which is what the U. S. has long done.


7. A stability could be assured for the tobacco industry, against any possible further litigation. There could be a one-time settlement, in which compensation to the shareholders would be market value minus some final liability assessment.

The underlying obstacle to such a public-health policy, in the United States, is an American hypnotic spell on behalf of "private enterprise." It is high time for that spell to be punctured.

The Functions of Trade Unions: The Case for Selective Transfers to Government

Recent actions in Wisconsin by Republican Governor Scott Walker, and Republican leaders in other states, have prompted heated debate over the general role of trade unions. Both sides have tended to obscure various dimensions of the facts--in some cases enormous facts.

The Wisconsin case

As to the specific case of public employees in Wisconsin, many liberals have jumped to the conclusion that Wisconsin public employees are undercompensated compared to private-sector workers with similar skills. Yet it appears, on the basis of a recent report by the McClatchy Tribune, that when total compensation is analyzed, including, not only salaries, but benefits, including retiree health insurance, and the economic value of greater job security in the public sector, Wisconsin public employees receive about ten percent higher compensation than similar private-sector workers.

On the other hand, many conservatives have reacted to such data by declaring that various public employees are "overpaid"--without asking how many private-sector employees are underprovided with health insurance, grievance procedures, vacation time, and secure and reasonable retirement income.

The general issue

As to the general issue of the overall role of trade unions, the history is mixed. Collective bargaining has brought legitimate and important protections to workers facing large employers, private and public, where no other means has been available. On the other hand, the history also includes excessive union power that has produced inflationary wage demands and excessive protection of incompetent, irresponsible, or surplus employees.

The problem of achieving a desirable balance of power between employees and management is complicated by the fact that, while in some other countries unionization is massive, with great diversity in attitudes of union leaders in different countries, in the United States unionization is far more limited, and is uneven. This inherently means inequalities, even great inequalities, in conditions and benefits in different parts of the economy.

The problem of inequalities

Trade unions influence decisions in the following areas, among others:
(1) Wages and salaries.
(2) Working conditions, including health and safety issues.
(3) The internal juridical situation governing grievance procedures.
(4) Health insurance, for active employees and retirees, which should be a basic social right.
(5) Retirement income, a part of total remuneration from, it should be noted, society.
These are separable functions. There is no "economic" necessity whatever for functions (4) and (5) to be connected with employers at all.

As to (4), if health insurance is decided by collective bargaining, the inevitable result will be inequalities in its terms. This function should be transferred altogether to the federal government in the form of a universal national healthcare system.

As to (5), in the United States people can do similar work for the same number of years and yet receive greatly unequal retirement incomes, depending on the types of employer or the state of the stock market at given points in time. The optimum approach would be a universal social-security system, including corporate executives, the self-employed, and farmers, funded by compulsory taxation, providing defined benefits, with adjustment of the terms (taxation, benefits, and ages of retirement) to accommodate demographic changes.

The collectivistic approaches proposed here meet profound opposition from a huge part of the American business community, which, for historical reasons, is far more hostile to the welfare state than its counterparts in Western Europe and Japan.

This is one of the great realities of "American exceptionalism"; it points directly to an "exceptional" case for a market socialism in the United States, for large firms, with taxing downward of great personal wealth, for nothing would be more effective in reducing the direct and indirect power of America's conservative business community.

Here is a vast blindness of American liberals. The term "liberal," referring to economic philosophy, directly denotes "within the framework of capitalism," particularly corporate capitalism, i.e. "liberty" for private property, including big property, with all the oligarchic political power this entails.

American liberals, because of their own psychology, fail to ask themselves why they are liberals and not socialists.