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grateful to be here today to talk about constitutional federalism, which is the cornerstone of our government. I would like briefly to talk about the virtues of constitutional federalism and then about how to revive it.

Chairman THOMPSON. Your full statements will be made a part of the record, to whatever extent you want to summarize.

Mr. MCGINNIS. Constitutional federalism is the most important structure of our Federal Government. It is a happy paradox that two interlocking governments can lead to better governance but less governance than one unitary State. The way the Constitution does that is to create two sets of governments, each limiting the other.

The Federal Government was limited by the enumerated powers. Essentially, the Federal Government domestically was given the power to create a national free market. But that very power limited the State Governments, because the State Governments had to compete in that market. Therefore, any exactions they took from their citizens would tend to cause their citizens to move, or move their capital elsewhere, and so that was a limitation on State governments.

But federalism also made governance better. It made governance better because it created a marketplace for governments. States had to compete, to create public goods, the public services that the market and the family cannot provide. There was pressure on them because they were in this national marketplace, this competitive marketplace among themselves to produce better services at lower costs.

Finally, the other most important virtue of federalism was that it pushed decisions down to the people. Adam Smith, in fact, said that benevolence is much more likely when people live among one another, and social solidarity and civic responsibility comes most easily in our communities. That is the other reason that federalism is part of a greater principle of subsidiarily, of trying to push decisions down to the people in the smallest possible community.

These are very great virtues. Unfortunately, our federalist system in the last 60 years has been very much frayed. In my testimony, I go into the reasons for that, but suffice it to say that we really no longer have a doctrine of enumerated powers. The Federal Government has plenary spending, and regulatory authority, and in my view, the consequences have been extremely unfortunate.

The Chairman has put up, I think, a very useful graph, because one of the most important consequences is that both our State Governments and our Federal Government tax and spend less efficiently than they did when federalism was at the height. I will just give you one statistic to show that. When federalism was at the height, which, I think, was around 1910, before the Sixteenth and Seventeenth Amendments, the Federal Government spent around 1 percent of GNP domestically on programs. Today, it spends 17 percent.

But it is not only the effects on our economy that are troubling. To me, the most worrying aspect of federalism's decline is the effect it has on our civic life. Because most government happens far away, apart from citizens' communities, citizens feel more alienated

And finally, because the Federal Government now has plenary spending and regulatory authorities, there are really no clear demarcations between the State and the Federal Government and that leads to a serious problem in accountability. If both governments can do the same thing, Federal officials can avoid accountability by seeming to make a State official be responsible for the action the Federal Government has undertaken.

So what I think we need today to do is to think about how to revive constitutional federalism, to do what Governor Leavitt said, create a new system of enforceable federalism. I am very pleased to support the draft bill of the Chairman of this Committee, which, I think, goes straight to the issue of accountability, the third danger to which the decline of federalism has led us.

The problem of preemption today is that the State laws can be preempted without the Congress making a conscious decision to do that, and that is a serious problem. Happily, the Chairman's bill would require Congress to provide reasons in a legislative report for its decision to preempt State law and the bill would also declare that no legislation or regulation would preempt State law unless it expressly so stated or it was in direct conflict.

This bill would encourage deliberation before preemption. It would also make it impossible for Federal judges to make decisions about preempting State law without express congressional authorization, and that is very important, because one of the protections the States still have in our system is that representatives are elected from the States and it is important that they make the decisions clearly and expressly to preempt State law.

But I must confess that I think this bill in itself is not sufficient to restore constitutional federalism. Unless the Federal Government is constrained constitutionally from spending and regulating, interest groups will bypass States and obtain spending and regulation on their behalf from the Federal Government. One-stop shopping is not only easier, but it avoids the competitive pressures that inhibit States from adopting special interest legislation.

Therefore, I would actually like to suggest that many of the other kinds of framework legislation and constitutional amendments that this body is considering to constrain the Federal Government are actually very important pieces of federalist legislation. I would point to the balanced budget amendment in this regard and the amendment which the House of Representatives has recently voted on, and voted with a majority, not the necessary two-third majority, to require a supermajority to raise taxes.

An amendment that would restrict both debt and taxes would force individuals and interest groups back to their States. There would be, then, constraints on the ease with which the Federal Government could spend, and the advantage of that would be the Federal Government would again be a limited government and there would be restraints on that graph showing us the taxes that have gone up so far in the past 80 years. And States and localities would become once again the main repository of spending, and competition among them would be revived.

Similarly, I think that one should also consider framework legislation and, if necessary, a constitutional amendment to make it very much harder for the Federal Government to devolve regu

latory decisions on Federal agencies. If Congress itself has to make the decisions on regulations, the Federal Government can regulate substantially less. And once again, I think that would reinvigorate States, because everyone would look primarily to them for regulatory activity. We need to think of how to reinvigorate States constitutionally.

I would add that none of these proposals would get rid of the Federal Government. The Federal Government could still operate to raise taxes, to raise debt, to spend more money, when there was a substantial national consensus. That is what a super-majority rule would require. They could still regulate if they were willing to take the hard work of making the regulations themselves rather than simply delegate these responsibilities to the State agencies.

But these two kinds of reforms would once again reinvigorate federalism and bring the States back to their proper place in our Federal system. Thank you, Mr. Chairman.

Chairman THOMPSON. Thank you very much. Professor Galston.



Mr. GALSTON. Mr. Chairman, my name is William Galston. I am a professor at the University of Maryland's School of Public Affairs. I must say, it is an honor for a private citizen representing no one except himself to be invited to testify on a matter of such fundamental importance to our Nation.

As you know so well, federalism is not a new question for our country. Indeed, it is the oldest question. It is the first question our founders faced in framing our Constitution and then in defending it against its many adversaries.

Confronted with the manifest inadequacies of the Articles of Confederation, the founders set out to strengthen the power and authority of the central government. They did so for three reasons that have shaped our history, and in my judgment, remain relevant today. First, to enable the American people to promote the common defense and general welfare of the Nation as a whole, as distinct from its parts. Second, to build a continental market free of internal barriers to the flow of commerce. And third, as James Madison emphasized in Federalist No. 10, to defend the rights and interests of individuals and minorities against the potential injustice of local majorities.

Not surprisingly, the Framers' efforts encountered staunch resistance from State officials who feared the loss of prerogatives and power if the new Constitution were ratified. In response, the supporters of the Constitution formulated a theory of federalism, memorably articulated in the Federalist Papers. In the interest of time, let me very briefly summarize the key points.

First, the system established by the new Constitution is neither a pure federation nor a pure centralized national government, but rather an historically unprecedented composite in which there would be concurrent jurisdiction over many matters, as well as

some exclusively reserved to the States or to the Federal Government.

Second, the Constitution invites and guarantees an ongoing tension between the States and the Federal Government, a tension that, like the struggle among the branches of the Federal Government itself, helps secure the people's liberties.

Third, in this ongoing struggle, the States will endeavor to expand their powers at the expense of the union, as will the National Government at the expense of the States.

Fourth, neither party to the struggle enjoys superior wisdom, virtue, or legitimacy. Both are trustees of the people, constituted with different powers to pursue different public purposes, ultimately answerable to the people alone.

There is no question that, in practice, Federal power has grown substantially over the past 2 centuries. It is important to understand why. This growth stems in part from classic Supreme Court decisions early in our history by Chief Justice Marshall that established broad, rather than narrow, interpretations of the necessary and proper Commerce and Supremacy Clauses. Federal authority was further expanded by the Civil War, which led to constitutional guarantees for the privileges and immunities of national citizenship, created for the first time in the wake of the Civil War.

Growth of Federal Government also reflects key 20th Century developments, such as the rise of an advanced interdependent industrial economy, a national economic emergency that overwhelmed the capacity of States and localities, a series of global military and security challenges, the struggle to secure in practice the rights of equal citizenship guaranteed to all Americans in theory, and the emergence of new challenges, such as environmental protection, that could not be fully addressed by States and localities acting individually.

These considerations remain relevant today, in my judgment, and argue for continued vigorous Federal power in the 21st Century. Nevertheless, it is clear that Federal authority is not and should not be unlimited. As James Madison says in Federalist 39, under the Constitution, the States retain “a residuary and inviolable sovereignty."

Courts have argued and will no doubt continue to argue about the precise extent of the matters reserved to the States, but the general proposition that the Framers intended a constitutional system with dual sovereignty is not open to serious doubt, and I would add, Mr. Chairman, that in the past decade the Supreme Court, in a series of cases, has endeavored to restore a brighter line between Federal and State authority, particularly in cases concerning the Commerce Clause.

It is equally clear from a constitutional as well as practical standpoint that States and localities should play a key role in formulating and implementing public policy, and in my prepared written testimony, I list a number of reasons why.

Roughly speaking, the half century after World War II has been divided into two fundamentally different eras. In the first of these eras, for reasons stemming largely from the civil rights struggle, the States were seen as the problem and the Federal Government took the lead. The second era turned this assumption on its head. The Federal Government was labeled the problem and devolution the solution. In my judgment, each of these assumptions represented, at best, a partial truth.

It is only recently that our governing institutions have begun to create a new synthesis, a contemporary federalism that balances distinctive Federal and State capacities and is responsive to our changing circumstances. Key examples of this progress include the Unfunded Mandates Reform Act, welfare and Medicaid reform, and the new children's health insurance program. All of these were enacted with substantial bipartisan support in the Congress and could not have succeeded without cooperation between Congress and the Executive Branch.

The challenge now is to maintain the progress towards this new synthesis, what Governor Leavitt earlier this morning called the golden mean. To this end and in conclusion, Mr. Chairman, I would urge the following points.

First, in many areas, it will prove productive to form a new form of Federal-State partnership in which the National Government establishes general public purposes and provides resources which the States decide for themselves within very broad guidelines how to employ.

Second, the National Government cannot retreat from its obligation to protect the rights of individual citizens, whether these rights are established by the Constitution or by legislation. The discharge of this obligation will not always, sadly, be consistent with the preferences of other actors in the Federal system.

Third, given the continuing importance of guaranteeing a free and open national market, we must be open to the possibility that economic, technological, and social changes will require the reconsideration of long-established Federal-State relations in particular sectors. Telecommunications, the Internet, banking, health care, and education are examples of areas where such rethinking may well be in order.

Fourth, it is likely that not all changes in the Federal system will point in the same direction. In some cases, the roles of States and localities will be significantly enhanced, while in others, the Federal Government may be called upon to exercise new leadership. A uniform approach is unlikely to promote the public good in every instance. Not every assertion of Federal power is justified, but not every restriction of State and local authority is unjustified. I would, therefore, recommend caution in the face of any proposal that represents a generalized presumption either for or against any particular level of the Federal system.

Thank you for giving me this opportunity, and, of course, I will be happy to respond to any questions.

Chairman THOMPSON. Thank you very much.

Gentlemen, I really appreciate you being with us. We are dealing with fundamentals here, constitutional law, the fundamentals that form the basis of our constitutional law, and we are dealing with the question, essentially, of power, are we not? It is part of our system of checks and balances, our system of federalism, and who is going to exercise the power of government and the kind of balance

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