Congressional control of state taxation: evidence and lessons for federalism theory

I present for the first time in the literature a quantitative analysis of the efficacy of the “political safeguards of federalism.” I also test the popular theory that congressional control of state authority to tax maximizes national welfare. Both analyses rely on a hand-collected data set of every federal statute from 1789 to 2011 affecting state power to tax. Overall, the data suggest that federal decisions to curtail state autonomy are influenced by congressional self-interest. Conditional on enactment, statutes affecting state taxing power are more likely to reduce state authority when a concentrated special interest group stands to benefit and also when the reduction would diminish competition between states and Congress. I argue that these results suggest that state power to influence Congress is not absolute, and that they should cast doubt on recent calls to grant control of state taxing authority solely to Congress.