Last week, U.S. officials issued an extraordinary threat against the state of North Carolina. The feds declared that if North Carolina officials refused to rescind their transgender bathroom law, the federal government would no longer send federal funds to North Carolina. The threat is one of the clearest manifestations of how the federal income tax and the welfare state upended the relationship between the federal government and the states — and between the federal government and the American citizenry — that was originally established under the Constitution.
It’s not really clear yet what federal funds the feds are threatening to withhold. Presumably, they would involve only those federal funds going to the North Carolina government — such as highway funds, public schooling funds, and various welfare funds.
Yet, there is clearly another hammer that the feds could use to force North Carolina to bend to its will — withhold funds from North Carolina recipients of Social Security, Medicare, Medicaid, farm subsidies, and other welfare to individual citizens and companies of the state.
Before you say, “Jacob, the federal government would never do anything that vicious,” keep in mind that that’s precisely what it does to citizens of other countries through the use of sanctions and embargoes. When the feds impose sanctions and embargoes on foreign countries, the reasoning is the same as it is against the state of North Carolina. They are telling recalcitrant foreign leaders: Do it our way or we will squeeze your citizens to death through our sanctions and embargoes. The feds are also telling the foreign citizens: If you don’t like the economic suffering we are imposing on you, then you need to force your government to bend to our will.
That’s what the feds could do by withholding Social Security, Medicare, Medicaid, farm subsidies, food stamps, and other welfare programs from the citizens of North Carolina. Their message would be the same as it is with sanctions and embargoes: Force your state officials to bend to our will and we will immediately restore your dole to you.
During the first 125 years of America’s existence, the federal government couldn’t make this type of threat. That’s because our American ancestors chose to have a system with no income tax and no welfare state. People were free to keep everything they earned and also free to decide what to do with their own money. They rejected the welfare-state philosophy — the philosophy that calls on the government to help people and states and localities through a financial dole.
That all changed when 20th-century Americans rejected the original system in favor of one based on the federal income tax and a welfare-state economic system. The system then became one based on taking money from everyone through the income tax and doling it out to seniors, the poor, farm conglomerates, struggling corporations and banks, foreign dictators, and the like. It also became one based on providing federal funds to the state governments to keep up the federally built Interstate Highway program, state highways and infrastructure, public schools, and other state programs.
Under the new system, the people in all 50 states send their taxes to the IRS and then the federal governments puts people and state governments on the federal dole. When the federal government send “federal funds” to the state of North Carolina or sends Social Security, Medicare, Medicaid, farm subsidies, food stamps, and education grants to the people of North Carolina, they’re doing it with money that has been taken from the people of North Carolina and the other states. Thus, the feds are threatening North Carolinians with their own money — that is, money that people have sent the federal government through the IRS and which the feds now say will not be sent back to North Carolina.
Under this system the states compete against each other to receive more money than what they send out. Some states end up on the winning side and some on the losing side. The winners get more money back from the feds than what their citizens have paid in taxes, and the losers get less. Who will get the federal money that is withheld from North Carolina? The other 49 states of course. They’ll be standing in line with their hands out, eagerly awaiting their share of the North Carolina loot.
How is this going to end? It’s impossible to say, especially given that North Carolina officials preempted the federal threat by placing the issue in a federal district court with a lawsuit against the feds. That, of course, doesn’t stop the feds from following through with their threat to withhold the federal dole from the state of North Carolina (and potentially the citizens of North Carolina) but it does place them in a somewhat awkward position. After all, that’s what the courts are for — to resolves disputes of this nature, as compared to using measures like threats, extortion, sanctions, and embargoes against the citizenry and the states.