Over at The Other McCain, Smitty comes out, while responding to Walter Russell Mead, in favor of taxing the states:

If we can put a moon on the man, why cannot we devise a system whereby every state is billed by DC annually, and let the states compete for citizens to pay the taxes? Pardon my rampant capitalism, but there it is… tax reform should be simplified, and the information about who lives where, for tax purposes, should be opaque to DC. The federal government has no business operating below the multi-state and international level.

Smitty also thinks government revenue would “crater” under such a system. I disagree, at least to the extent that “crater” implies a drastic, unwanted loss of taxation and services. People want services and are willing to pay for them. The only difference between a state-based system and a federal system is that some people would vote with their feet when the cost of services exceeds the value of those services.

I expect that a person’s state taxes would increase by about 60% to 90% of what they had been giving to the federal government; that federal bureaucrats would suddenly discover that they can, in fact, provide the same services at a much reduced cost; and that the vastly improved jobs climate would make up the difference. Because while the taxes would still be paid, just to the state instead of the feds, the regulations would be halved. And perhaps even more importantly, the need to maintain national lobbyists would almost disappear. Most businesses could live without them if the federal government wasn’t making new tax loopholes every day.