Last year, the European Union got into a heated dispute with Hungary and Poland over laws and policies that Brussels did not like. In an attempt to force compliance, the EU decided to withhold money for both countries.
Hungary sparred with the EU over taxes, aid to Ukraine, and EU funds for themselves. After months of negotiations, where Hungary eventually approved the EU-wide adoption of a global minimum tax on corporate income, Brussels agreed to release €5.8 billion to Budapest.
In the dispute between the EU and Poland, Brussels tried to fiscally strong-arm Warsaw over reforms of the judicial system.
Both the Polish and Hungarian governments were in their moral right to exercise their national independence, but the disputes were also a lesson to be learned, not just for Budapest and Warsaw, but for all EU member states. The lesson is simple: he who pays your bill owns your will.
A more rustic way to put the same aphorism would be ‘fiscal blackmail.’ Regardless of how we articulate it, this lesson is one for both Europeans and Americans to learn. Recently, the Biden administration has begun using the same tactics on states whose abortion laws it does not like.
It is hard for people looking at America from the outside to believe that governments could use money to coerce each other. After all, does not the American constitution say that the states are independent jurisdictions?
Yes, it does. The independence of the states is one of the many things that makes the United States of America such a unique and wonderful country. We are not a nation-state. We are a constitutional republic, where the federal government was formed by the states (and not the other way around, as President Reagan liked to point out).
This has contributed to the multitude of social, cultural, and even ethnic flavors that make America what she is today.
The strength of the 50 states is often misunderstood by Europeans. The EU was not modeled after the American Union. Not only does our federal government have better transparency and accountability than the EU does, but the U.S. states are in many ways stronger vs. the central power than EU member states tend to be.
It is not always easy to see this in European media coverage of America, but the fact of the matter is that our states give us a dynamic, exciting, and often perplexing political environment. Every state has its own legislature and its own chief executive officer, a.k.a., governor, and they all like to act as if they are completely independent of Washington.
State constitutions vary, sometimes significantly, but at the core, they mirror the federal constitution. They define the same three equal but separate branches of government: a legislature, an executive office, and a judicial system which includes an independent supreme court.
The constitutional differences can be fascinating, but even more so are the differences in the political flavors of the states. Those differences include very different tax policies, different approaches to education, gun control, marijuana legalization, the death penalty, and so on.
These differences allow our country to be one big experimental laboratory for political ingenuity—for better or worse—but it can also be a source of cultural and political polarization. This is exactly what has happened in recent years. It started under President Trump when some left-leaning states began showing outright hostility toward the federal government.
It has continued and even escalated under the Biden presidency. However, unlike the Trump years when some Democrat-run states were the ones causing problems in state-federal relations, this time, the belligerent party is the federal government. Its dislike for conservative-leaning states showed up already in 2021, Biden’s first year in office, when it attempted to force states into compliance with radical transgender ideology. This led to a lawsuit by 20 states on the premise that states are fundamentally independent jurisdictions.
At that point, the tug-of-war between the states and the Biden administration was still limited to the interpretation of rules and regulations, and what jurisdiction the federal government had to impose its will upon the states. However, as a sign of its increasing frustration with not being treated as ideological royalty, the president and his cabinet members have now decided to turn up the heat and weaponize taxpayers’ money.
Every year, the federal government sends big checks to the states for what is formally known as “federal aid to states”: in 2022, the total amount dispensed to all 50 states and the District of Columbia was $1,085 billion. This is the second year in history that federal aid has exceeded $1 trillion; the first time it happened was in 2021.
On average, these funds pay for 38% of state government spending. Approximately half of the money pays for Medicaid, a program that provides health insurance for lower-income households. Generally, federal money pays for two-thirds of the total cost of the Medicaid program, though the share varies from state to state. The rest of the cost is covered by the states.
The federal funds also pay for social welfare, highways, and, to a lesser degree, education.
In the past ten years, state governments have slowly become more dependent on the federal funds for revenue. A decade ago, it was impossible to find a state where the federal government paid for more than half of all state government spending; today, three states have climbed above that level:
- Mississippi is at 51.7%;
- Michigan is at 50.7%; and
- South Dakota is at 50%.
Back in 2008, I wrote a report for the Heritage Foundation on the growing presence of federal funds in state budgets. Already then, I pointed to the problems for state independence that came with increased dependency on federal funds.
Over the years I have asked countless state legislators—and a handful of governors and gubernatorial candidates—how far they thought they could push their state’s dependence on federal money. I made clear on numerous occasions that allowing the federal government to fund more than 50% of a state’s total spending might not be a good idea. It might not even be a good idea to allow the federal government to pay for a majority of the spending under an individual state government program.
With very few exceptions, the elected officials I talked to refused to admit that federal funds dependency was a problem. Part of the reason was that they simply did not believe that those funds would ever be used for any kind of political blackmail.
Well, I hate to say it, but see, I told you so. With a president who is ideologically more aggressive than almost anyone of his predecessors, and with three states getting most of their revenue from the federal government, the table is set for a fiscal showdown between Washington and the states.
It is not limited to the three states mentioned earlier. The other 47 states are in almost as deep, often receiving more than half of the money for individual spending programs from the federal government. As an example, about two out of every three dollars spent on the state-run Medicaid programs come from the federal government. Highway funding is another example, where Louisiana, Montana, Nebraska, New Mexico, North Dakota, and Vermont are some of the states that get more than half of the budget from Congress.
And now it is time to weaponize those funds. It starts off with small amounts; this article from CatholicVote.com gives a small preview of what lies ahead:
The Biden administration recently pulled $4.5 million in funding from the Oklahoma State Department of Health’s (OSDH) family planning services in what critics call an act of retribution for the state’s pro-life laws. According to the OSDH, Biden’s Department of Health and Human Services (HHS) revoked the grant due to the OSDH’s pro-life family services being deemed “out of compliance” by the federal government.
Oklahoma is not one of the top states when it comes to fiscal dependence on the federal government, but they get almost exactly two-thirds of the money for their Medicaid program from Washington. The Biden administration effectively owns Oklahoma’s Medicaid services.
This is not just a technical fiscal matter. As the CatholicVote article explains, it is a real, tangible problem:
As a result, the OSDH is now unable to serve around 30,000 low-income people with family services such as counseling, testing and treatment ofr [sic] STDs, physical examinations, and prenatal care and education.
Bluntly speaking: when you accept free money from someone, sooner or later you will find out that the money was not free. This lesson for Oklahoma is no different than the lesson that European countries are learning when they are denied funds from the European Union that they have a statutory right to, but the EU withholds for reasons of ideological coercion.
In the case of Oklahoma, this is not a big problem. Compared to the $30 billion that the state government collects in annual revenue, the $4.5 million that the Biden administration is withholding is basically an accounting error. With any luck, the state government has already filled that hole with money from its reserve funds.
No, the problem is that this kind of ideological blackmail now works its way into the mainstream of government operations. In a letter to Xavier Becerra, Biden’s Secretary of Health and Human Services, Senator James Lankford from Oklahoma put his finger on exactly this aspect of the HHS decision to withhold the money. He points to how the HHS is motivating the denial of the grant with Oklahoma’s strict abortion law, which only permits the procedure when necessary to save the woman’s life.
Senator Lankford goes on to explain that the HHS has made “attempts over the course of several months” to force the state government in Oklahoma “to comply with the Administration’s pro-abortion demands,” even though compliance with those demands would put Oklahoma in violation of other federal laws, as well as the state’s own abortion law.
The Biden administration’s obsession with abortion and its willingness to try to coerce pro-life-leaning states into compliance by withholding money reach farther than Oklahoma. Last year they clashed with the state government in Texas over largely the same issue. In August 2022, The Texan reported that the state had applied for money from the federal government “to extend postpartum Medicaid coverage for new Texas mothers from two months to six.”
The federal agency responsible for the grants that Texas applied for, is called Centers for Medicare and Medicaid Services, CMS. According to The Texan, the CMS rejected the application, but did not immediately provide a written explanation of its decision:
While CMS has not provided its justification, some legislators who passed the bill believe that language is at the issue’s center—namely that it would exclude women who have abortions.
Those legislators would not be saying so, had they not heard off-hand that the CMS had reacted to the exclusion of women having abortions.
It is easy to sympathize with both Oklahoma and Texas in their desire to remain independent and retain the right to pass whatever constitutionally compliant laws they want. At the same time, both states have made the decision to become dependent on the federal government for funding critical state programs. Did they really believe that there would never come a point in time when that dependence would be used against them?
The America Report: Abortion and Fiscal Blackmail
Last year, the European Union got into a heated dispute with Hungary and Poland over laws and policies that Brussels did not like. In an attempt to force compliance, the EU decided to withhold money for both countries.
Hungary sparred with the EU over taxes, aid to Ukraine, and EU funds for themselves. After months of negotiations, where Hungary eventually approved the EU-wide adoption of a global minimum tax on corporate income, Brussels agreed to release €5.8 billion to Budapest.
In the dispute between the EU and Poland, Brussels tried to fiscally strong-arm Warsaw over reforms of the judicial system.
Both the Polish and Hungarian governments were in their moral right to exercise their national independence, but the disputes were also a lesson to be learned, not just for Budapest and Warsaw, but for all EU member states. The lesson is simple: he who pays your bill owns your will.
A more rustic way to put the same aphorism would be ‘fiscal blackmail.’ Regardless of how we articulate it, this lesson is one for both Europeans and Americans to learn. Recently, the Biden administration has begun using the same tactics on states whose abortion laws it does not like.
It is hard for people looking at America from the outside to believe that governments could use money to coerce each other. After all, does not the American constitution say that the states are independent jurisdictions?
Yes, it does. The independence of the states is one of the many things that makes the United States of America such a unique and wonderful country. We are not a nation-state. We are a constitutional republic, where the federal government was formed by the states (and not the other way around, as President Reagan liked to point out).
This has contributed to the multitude of social, cultural, and even ethnic flavors that make America what she is today.
The strength of the 50 states is often misunderstood by Europeans. The EU was not modeled after the American Union. Not only does our federal government have better transparency and accountability than the EU does, but the U.S. states are in many ways stronger vs. the central power than EU member states tend to be.
It is not always easy to see this in European media coverage of America, but the fact of the matter is that our states give us a dynamic, exciting, and often perplexing political environment. Every state has its own legislature and its own chief executive officer, a.k.a., governor, and they all like to act as if they are completely independent of Washington.
State constitutions vary, sometimes significantly, but at the core, they mirror the federal constitution. They define the same three equal but separate branches of government: a legislature, an executive office, and a judicial system which includes an independent supreme court.
The constitutional differences can be fascinating, but even more so are the differences in the political flavors of the states. Those differences include very different tax policies, different approaches to education, gun control, marijuana legalization, the death penalty, and so on.
These differences allow our country to be one big experimental laboratory for political ingenuity—for better or worse—but it can also be a source of cultural and political polarization. This is exactly what has happened in recent years. It started under President Trump when some left-leaning states began showing outright hostility toward the federal government.
It has continued and even escalated under the Biden presidency. However, unlike the Trump years when some Democrat-run states were the ones causing problems in state-federal relations, this time, the belligerent party is the federal government. Its dislike for conservative-leaning states showed up already in 2021, Biden’s first year in office, when it attempted to force states into compliance with radical transgender ideology. This led to a lawsuit by 20 states on the premise that states are fundamentally independent jurisdictions.
At that point, the tug-of-war between the states and the Biden administration was still limited to the interpretation of rules and regulations, and what jurisdiction the federal government had to impose its will upon the states. However, as a sign of its increasing frustration with not being treated as ideological royalty, the president and his cabinet members have now decided to turn up the heat and weaponize taxpayers’ money.
Every year, the federal government sends big checks to the states for what is formally known as “federal aid to states”: in 2022, the total amount dispensed to all 50 states and the District of Columbia was $1,085 billion. This is the second year in history that federal aid has exceeded $1 trillion; the first time it happened was in 2021.
On average, these funds pay for 38% of state government spending. Approximately half of the money pays for Medicaid, a program that provides health insurance for lower-income households. Generally, federal money pays for two-thirds of the total cost of the Medicaid program, though the share varies from state to state. The rest of the cost is covered by the states.
The federal funds also pay for social welfare, highways, and, to a lesser degree, education.
In the past ten years, state governments have slowly become more dependent on the federal funds for revenue. A decade ago, it was impossible to find a state where the federal government paid for more than half of all state government spending; today, three states have climbed above that level:
Back in 2008, I wrote a report for the Heritage Foundation on the growing presence of federal funds in state budgets. Already then, I pointed to the problems for state independence that came with increased dependency on federal funds.
Over the years I have asked countless state legislators—and a handful of governors and gubernatorial candidates—how far they thought they could push their state’s dependence on federal money. I made clear on numerous occasions that allowing the federal government to fund more than 50% of a state’s total spending might not be a good idea. It might not even be a good idea to allow the federal government to pay for a majority of the spending under an individual state government program.
With very few exceptions, the elected officials I talked to refused to admit that federal funds dependency was a problem. Part of the reason was that they simply did not believe that those funds would ever be used for any kind of political blackmail.
Well, I hate to say it, but see, I told you so. With a president who is ideologically more aggressive than almost anyone of his predecessors, and with three states getting most of their revenue from the federal government, the table is set for a fiscal showdown between Washington and the states.
It is not limited to the three states mentioned earlier. The other 47 states are in almost as deep, often receiving more than half of the money for individual spending programs from the federal government. As an example, about two out of every three dollars spent on the state-run Medicaid programs come from the federal government. Highway funding is another example, where Louisiana, Montana, Nebraska, New Mexico, North Dakota, and Vermont are some of the states that get more than half of the budget from Congress.
And now it is time to weaponize those funds. It starts off with small amounts; this article from CatholicVote.com gives a small preview of what lies ahead:
Oklahoma is not one of the top states when it comes to fiscal dependence on the federal government, but they get almost exactly two-thirds of the money for their Medicaid program from Washington. The Biden administration effectively owns Oklahoma’s Medicaid services.
This is not just a technical fiscal matter. As the CatholicVote article explains, it is a real, tangible problem:
Bluntly speaking: when you accept free money from someone, sooner or later you will find out that the money was not free. This lesson for Oklahoma is no different than the lesson that European countries are learning when they are denied funds from the European Union that they have a statutory right to, but the EU withholds for reasons of ideological coercion.
In the case of Oklahoma, this is not a big problem. Compared to the $30 billion that the state government collects in annual revenue, the $4.5 million that the Biden administration is withholding is basically an accounting error. With any luck, the state government has already filled that hole with money from its reserve funds.
No, the problem is that this kind of ideological blackmail now works its way into the mainstream of government operations. In a letter to Xavier Becerra, Biden’s Secretary of Health and Human Services, Senator James Lankford from Oklahoma put his finger on exactly this aspect of the HHS decision to withhold the money. He points to how the HHS is motivating the denial of the grant with Oklahoma’s strict abortion law, which only permits the procedure when necessary to save the woman’s life.
Senator Lankford goes on to explain that the HHS has made “attempts over the course of several months” to force the state government in Oklahoma “to comply with the Administration’s pro-abortion demands,” even though compliance with those demands would put Oklahoma in violation of other federal laws, as well as the state’s own abortion law.
The Biden administration’s obsession with abortion and its willingness to try to coerce pro-life-leaning states into compliance by withholding money reach farther than Oklahoma. Last year they clashed with the state government in Texas over largely the same issue. In August 2022, The Texan reported that the state had applied for money from the federal government “to extend postpartum Medicaid coverage for new Texas mothers from two months to six.”
The federal agency responsible for the grants that Texas applied for, is called Centers for Medicare and Medicaid Services, CMS. According to The Texan, the CMS rejected the application, but did not immediately provide a written explanation of its decision:
Those legislators would not be saying so, had they not heard off-hand that the CMS had reacted to the exclusion of women having abortions.
It is easy to sympathize with both Oklahoma and Texas in their desire to remain independent and retain the right to pass whatever constitutionally compliant laws they want. At the same time, both states have made the decision to become dependent on the federal government for funding critical state programs. Did they really believe that there would never come a point in time when that dependence would be used against them?
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