States like Texas, Florida, and New Hampshire pride themselves on having no state income tax on individuals. But that is only literally true of the 60 or 70 percent of their budgets that comes from state revenue. With respect to the portion derived from federal sources, Washington in effect imposes a high state income tax, which it collects on their behalf. States have no choice about that. Their only viable option is to accept on bended knee the sovereign’s offer to return their money back, in exchange for their obedience. It’s a fair bet few Americans understand what is really going on behind the façade of federal assistance.

Federal dominance is often justified as the only way to secure uniform laws. But states don’t need coercion to achieve that end. The Uniform Commercial Code of 1962, for example, was a marked improvement over the old state common law of contracts, and it greatly facilitated interstate commerce. Every state has adopted it, with the partial exception of Louisiana, which kept its old French civil code for sales. The American law of contracts was successfully modernized and harmonized without any federal involvement, under a scheme that gave free rein to diversity and local choice.

Similarly, Common Core was originally an initiative of the National Governors Association, with no federal involvement, but the Obama administration made participation a criterion for federal education grants. That’s where many states cry foul. States that comply are rewarded in part from taxes collected in states that buck Common Core—the familiar coercion at the heart of federal grants.

Money isn’t the only lever the feds use to increase their influence over state governments. Formally, the federal government can’t require states to implement federal regulations. But environmental regulations show how easy it is to get around that constraint. The Clean Air Act allows the states to issue federal permits—but only under federally approved state implementation plans, or SIPs. Those plans must meet a dizzying number of conditions; otherwise, the EPA trumps with a federal implementation plan, or FIP.

When EPA comes in with its FIP, it often comes to “crucify” local industries, as former EPA Regional Administrator Al Armendariz boasted at a closed-door meeting early in the Obama administration. The crucifixion takes the form of costly added requirements and endless delays. The federal government basically says to uncooperative states, “Implement our regulations for us, or we’ll do it ourselves, and your constituents will be sorry.” Predictably, constituents pressure state officials to protect them from the dire prospect of EPA implementing its own regulations, as we saw when Texas at first resisted implementing EPA’s new greenhouse gas regulations.

These problems have their roots in a major constitutional transformation that began a hundred years ago. In 1913, the 16th Amendment was ratified, allowing Congress to institute a real income tax for the first time. Later that year the 17th Amendment provided for direct election of senators. These two changes made the government much bigger and more “national.” That era also gave birth to the modern administrative state, which has steadily absorbed the rule-making functions of Congress. Then came President Franklin D. Roosevelt’s New Deal, with its insistence on intrusive regulations of labor and agriculture that were clearly outside Congress's constitutional power to regulate commerce “among the several states.”

AP

The Supreme Court at first mounted some resistance, but then, starting in 1937, it dramatically backed down. In Steward Machine Co. v. Davis the Court allowed the government to attach pretty much any condition to a federal tax rebate. Five years later, in Wickard v. Filburn, the Court allowed the federal government to regulate virtually any activity of an economic nature. These rulings opened the door to the “great consolidation of Government” that the Constitution’s original opponents had warned of during the ratification debates.