Better Governing Now » The Rightful Remedy to Curb Federal Spending: State Escrow Accounts


The Rightful Remedy to Curb Federal Spending: State Escrow Accounts

Diane Rufino
    Federal spending is clearly out-of-control. Most everyone acknowledges it. But no one seems to want to focus on a real remedy. Rather, most spend their time blaming one political party or the other (while the truth is that they both are equally to blame) or sometimes calling for a balanced budget amendment. The latter is totally unnecessary if one is willing to simply acknowledge that the Constitution itself, by its very word and spirit, requires limited spending. Any amendment will merely ratify (memorialize) the People's concession that the government has the exceedingly broad taxing and spending powers that it was able to get the Supreme Court to grant it. And once that amendment is added, our government will no longer be a limited one. The Constitution will be one that is incapable of reigning in the powers that be. And that is why those organizations supporting a Convention of States have conveniently used a "Balanced Budget Amendment" as the reason to call such a Convention.

    Any real remedy to the out-of-control spending that plagues our nation and threatens to burden our children and grandchildren and weaken our national security must address the reason for that spending. The reason we have this problem is that the federal government has exceeded its authority when it comes to its taxing and spending powers and it has greatly over-exaggerated its purpose in people's lives and its responsibility in the matters of this great land.

    For example, there are the more than 1,100 "grants-in-aid" programs ("conditioned" federal grants, usually for a specific purpose) that spend one-sixth of the federal budget on matters that are the exclusive business of state and local governments.

    According to an article by James L. Buckley in the Wall Street Journal:

    "Those programs, which provide funding for Medicaid as well as everything from road and bridge construction to rural housing, job training and fighting childhood obesity--now touch virtually every activity in which state and local governments are engaged. Their direct cost has grown, according to the federal budget, to an estimated $640.8 billion in 2015 from $24.1 billion in 1970.

    Their indirect costs, however, go far beyond those numbers both in terms of dollars wasted and the profound distortions they have brought about in how we govern ourselves. Because the grants come with detailed federal directives, they deprive state and local officials of the flexibility to meet their own responsibilities in the most effective ways, and undermine their citizens' ability to ensure that their taxes will be used to meet their priorities rather than those of distant federal regulators. The irony is that the money the states and local governments receive from Washington is derived either from federal taxes paid by residents of the states or from the sale of bonds that their children will have to redeem.

    Congress finds the authority to enact those programs in the Supreme Court's interpretation of the Constitution's general-welfare clause in Steward Machine Co. v. Davis (1937). More recently, in the court's 2012 NFIB v. Sebelius decision upholding the Affordable Care Act's individual mandate, Chief Justice John Roberts wrote that Congress may use federal funds to "induce the States to adopt policies that the Federal Government itself could not impose," so long as participation by the states is voluntary. To put it another way, Congress is licensed to dabble in areas in which it is forbidden to act, which it does by bribing the states to adopt Congress's approaches to problems that are the states' exclusive responsibility.

    It is impossible, in this article, to detail all the costs imposed by those programs, but here are some of the most egregious ones: They add layers of federal and state administrative expenses to the cost of the subsidized projects; distort state priorities by offering lucrative grants for purposes of often trivial importance; and undermine accountability because state officials bound by federal regulations can't be held responsible for the costs and failures of the projects they administer.

    Finally, and of prime importance, those programs have subverted the Constitution's federalism, its division of federal and state responsibilities, that was intended to prevent a concentration of power in a central government that could threaten individual liberties.

    The states are free to decline to participate in the programs, but that has proved very hard to do. Money from Washington is still regarded as "free," and state officials are delighted to accept grants, strings and all, rather than raise the extra money that would be required to pay the full cost of the projects they freely undertake with federal subsidies. What makes declining grants particularly difficult is the fact that if a state does not participate in a program, its share of the money--derived in whole or part from its own taxpayers--will go elsewhere."

    [Reference: James L. Buckley, "How Congress Bribes States to Give Up Power," Wall Street Journal, December 25, 2014. Referenced at: Mr. Buckley is a retired federal appellate judge and a former U.S. senator]

    I have proposed a remedy. I like to call it the "Rightful Remedy" for curbing federal spending. The remedy relies on the sovereignty of the states, on the federal nature of our government system, and on the Tenth Amendment.

    In short, the remedy summons the states to step up to their unique and historical responsibility to act as the last safeguard of their citizen's individual's liberty. The remedy would have each state, through their Treasury Department, establish an "Escrow Account" or "Escrow Fund" into which it would deposit its citizens' federal income tax withholdings or funds. To be clear, citizens of each state will direct their federal income tax withholdings to go to the state Escrow Account rather than to the IRS. Similarly, citizens who don't receive a salary but have other assets that the government taxes will send their federal income tax check to the same state Escrow Account instead of to the IRS. The funds will remain in the Account while the State Treasurer (either as a solo effort or in collaboration with other state treasurers) evaluates the federal budget for constitutionality. The Treasurer will review each item of spending and evaluate it according to the original meaning and intent of the Constitution (as it was debated, understood, and adopted by the People of each state, acting in convention in the years 1787-1790 to establish the Union of states) to see if it consistent or inconsistent with Article I, Section 8. After reviewing each item, the NC Department of State Treasurer will determine the percentage of the federal budget that is constitutional (as opposed to that portion that is unconstitutional and should rightfully be reserved to the states). The State Treasurer will then re-calculate each individual's federal income tax burden according to its determination of constitutionality.

    The State Treasurer will then forward to the IRS that portion of each individual's tax burden that corresponds to the constitutional purposes of the budget and the remainder will remain in the State Escrow Account. The state can then determine what it should do with the amount remaining in the Account. It may choose to keep it there ("just in case"). Preferably, it will return a good portion to the individual on account that he/she was overtaxed in the first place. It may also choose to keep a portion of the amount to fund state projects that normally would have required federal funding, including "conditioned" grants.

    The State could also have its citizens direct their FICA withholdings to a state Escrow Account (a different one, perhaps - a state "Social Security Escrow Account") rather than to the IRS in order to protect their interests when they enter their retirement years. The State Treasurer could research the best investment scheme to invest the funds for the citizen so that when he or she reaches the age of retirement, the retirement funds that he or she receives will be secure and plentiful.

    This remedy, in general, achieves several goals:

    It reminds Congress that not all of its spending is constitutional.

    It divests Congress of the broad interpretation of its taxing (and spending) powers that the Supreme Court has generously provided over the many years.

    It puts an important check on the scope of the federal government by the sovereign that was always intended to provide that check - the states (under the Tenth Amendment and under Compact and Agency theories).

    It helps States break free of their dependency on the federal government and hence resume their sovereign responsibilities and sovereign status.

    It forces government to divest itself of the functions and agencies that it can no longer 'pay for.'

    It forces government to "exist within its means" (just as ordinary people are required to do).

    It provides an element of transparency and accountability in government.

    It reduces the individual federal income tax burden and allows citizens to keep more of their own money, or at least to have it spent in their "own back yard" (in their own state, to accomplish goals that benefit them more directly).

    The reduced federal income tax burden allows the states to tax according to their own schemes in order to fund directly their own projects, as they themselves see fit for their people.

    The scheme introduces a degree of innovation and creativity on the part of the state ("50 independent laboratories of innovation") which will serve to make our government system most efficient.

    If the federal government becomes too abusive and continues to usurp reserved state powers or if it threatens individual liberty, it is much easier to shut it down and effect the remedies provided to the People in the Declaration of Independence ("to alter or abolish" government) by withholding tax funds completely.

    I have written my proposal in Resolution form, and in a particularly detailed form, in order to clearly state or establish the foundations for the proposal. I believe the foundations have been lost on Americans for many generations now and it is probably for that reason that we have are in the situation we now find ourselves.

    If our country doesn't get its finances in order, and if we, as a People, don't get our government back to work for us instead of for itself and its longevity and get it back within reasonable boundaries in our lives, in our livelihoods, and on our property (all forms), then we will lose everything good about the experiment that was started by those who reached our shores to escape various types of persecution from their own governments and who instigated for independence.

    Looking at history I am reminded of countries that take different views of the role of government. There are strikingly essential differences between the governments of different countries. Most striking are those between the western nations and communism. Communism exalts the state over the individual and the family while western societies value the rights of the individual. With our federal government attempting to take care ("control") of the individual from cradle to grave, with its massive schemes to redistribute wealth and property, with its funding of Planned Parenthood (the unborn can be sacrificed for higher goals), and its latest schemes, Obamacare (forcing the young and healthy into the health insurance market to help pay the healthcare fees for those who can't afford it) and Common Core (uniform "programmed" education), one has to wonder what our government exalts, or promotes - the state, and what is best "for the state," or the individual.


    Whereas, "The Creator has made the earth for the living, not for the dead. Rights and powers can only belong to persons, not to things." (Thomas Jefferson). Rights and powers do not originate or belong to a government, unless that power is exercised for the People - on behalf of them - and NOT against them;

    Whereas, the several States, by a compact under the style and title "Constitution for the United States," and of amendments thereto, voluntarily constituted a general government for special common purposes;

    Whereas, the several States are parties to the compact (Constitution), with the people of said States acting in their own conventions to consider, debate, deliberate, and ratify it;

    Whereas, our government structure is predicated on separation of powers between the States, as sovereigns, and the federal government, which is sovereign with respect to only certain responsibilities (Article I, Section 8; express language, as re-affirmed in the state ratifying conventions and the Federalist Papers, the leading authority on the meaning and intent of the Constitution);

    Whereas, this separation of powers, known as federalism, is a critical feature of our government system, intended to safeguard the "precious gem" of individual liberty by limiting government overreach;

    Whereas, there is no provision in the Constitution nor any grant of delegated power by which the States can be said to have (willingly or intentionally) surrendered their sovereignty, for it is clear that no State would have ratified the document and the Union would not have been established;

    Whereas, the States were too watchful to leave the opportunity open to chance and using an abundance of caution, insisted that a series of amendments be added, including the Tenth Amendment, as a condition of ratification and formation of the Union;

    Whereas, the Preamble to the Bill of Rights expressed the unambiguous intention of those amendments, and reads: "The Conventions of a number of the States having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best insure the beneficent ends of its institution";

    Whereas, that relationship between the states and the federal government is defined by the Tenth Amendment, which reads: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people";

    Whereas, the critical relationship has been eroded through the many Supreme Court decisions which have transferred power from the States to the federal government in order to enlarge its sphere of influence;

    Whereas, the relationship has been further eroded by the dependence that States have on the federal government for funding;

    Whereas, the Supreme Court has upheld the notion that the government "has the power to fix the terms upon which its money allotments to states shall be disbursed" (South Dakota v. Dole, 1987) and therefore has upheld its conditioned funds to the states as permissible (as a matter of contract law);

    Whereas, with the blessing of the Supreme Court, the government can achieve through conditioned spending that which it cannot achieve constitutionally, thereby allowing it to do an end-run on the Constitution and to avoid its limitations under the Tenth Amendment;

    Whereas, while the decision in Dole has noted that the conditioned spending must be for the General Welfare, it incorrectly interpreted the Constitution's "General Welfare" Clause ("to provide for the General Welfare") as vesting the federal government with an independent grant of power rather than recognizing that the clause merely serves as a qualifier for the 17 enumerated objects of legislation that follow;

    Whereas, the federal government is not the sovereign body vested with the responsibility to address all the nation's concerns, including local issues, which is what the "General Welfare" clause could easy be used to do;

    Whereas, the federal government has made itself the exclusive and final judge of the extent of the powers delegated to itself, and as such, its need for power and its discretion - and not the Constitution - have been guiding those decisions.

    Whereas, the federal government has created for itself an absolute monopoly over the nature and scope of its powers and has consistently assumed powers it wasn't meant to have - misappropriating them from the States and from the People;

    Whereas, the federal government has used said monopoly to change the nature of the Constitution, to redefine its terms, and to re-establish boundaries of government on the individual without using the lawful route, Article V;

    Whereas, the particular security of the people is in the possession of a written and stable Constitution. The branches of the federal government, acting in unison rather than apprehension, have made it a blank piece of paper by construction;

    Whereas, the government, once populated by representatives who were primarily beholden to the interests of the people and the States, is now populated by representatives who are primarily beholden to the interests of the government;

    Whereas, through the consolidation and concerted action of its branches and said monopoly, the federal government has transformed itself into a strongly centralized, bloated national government, vested with illegitimate powers and barely recognizable as the government intended by our creators and adopted by the States in the years of our founding. This bloated central government is coercive, wasteful, corrupt, and out of touch with the People. Less than one quarter of the people trust it, most are afraid of it, and those who are required to support it by paying federal income taxes believe they are paying too much and question the legitimacy of the purposes for which it taxes and spends. Most importantly, the government is one that poses serious threats to the exercise of the freedoms that Americans are deemed to be endowed with;

    Whereas, the direct consequence of a government that has enlarged its powers and functions is that it requires a larger budget and therefore has to tax its citizens more;

    Whereas, with respect to federal grants and other forms of funding, if the government's budget includes funds to "bribe" the states and otherwise attempt to influence state policy or planning, then it clearly overtaxes its citizens. Bribing the states or otherwise paying for any of its internal functions or projects is not one of the objects for which Congress can tax and spend under the Constitution, even if said bribe is cloaked in contract terms. The states are so financially strapped that there is effectively no "choice" involved in accepting grants of funding from the federal government and essentially, the offer amounts to an act of coercion. The government is absolutely forbidden to coerce a state government or its agents;

    Whereas, the power to prevent the further consolidation of powers in the central government and the right of judging on infractions of inherent powers is a fundamental attribute of sovereignty which cannot be denied to the States, and therefore they must be allowed to do so;

    Therefore, in order to reverse the unintended concentration of power in the federal government and in order to divest it of powers it has misappropriated and assumed for the past 200 years, and perhaps even to provide an additional check on the federal government by the People themselves (for whom the government is to serve and be accountable, according to the Declaration of Independence, lest they find the need to "alter or abolish"), the State of North Carolina will adopt the following scheme:

    The citizens of the state of North Carolina will have federal income taxes withheld from their paychecks but instead of those withholdings going to the federal government, they will be ear-marked to a state "Escrow Account" or "Escrow Fund" established by the NC Department of the State Treasurer.

    Likewise, citizens of the state of North Carolina will have FICA taxes withheld from their paychecks and also ear-marked to the state "Escrow Account/ Fund."

    Citizens of North Carolina who receive no salary (that is taxable) but who have other assets that the federal government is able to tax under the federal Income Tax laws will send their federal income tax burden to the State (NC Department of the State Treasurer) to be deposited in the "Escrow Account/ Fund" rather than send the check to the IRS.

    The NC Department of the State Treasurer will evaluate the federal budget for constitutionality. It will review each item of spending and evaluate it according to the original meaning and intent of the Constitution (as it was debated, understood, and adopted by the People of each state, acting in convention in the years 1787-1790 to establish the Union of states) to see if it consistent or inconsistent with Article I, Section 8.

    After reviewing each item, the NC Department of State Treasurer will determine the percentage of the federal budget that is constitutional (as opposed to that portion that is unconstitutional and should rightfully be reserved to the states).


College Professor Blasts Self-Absorbed Student Who Felt Offended at a College Sermon: "This is Not a Daycare. It is a University!" For Love of God and Country, Editorials, Op-ed & Politics The RINO question