Federalism is a type of government in which the power is divided between the national government and other governmental units. It contrasts with a unitary government, in which a central authority holds the power, and a confederation, in which states, for example, are clearly dominant.

While the Constitution addressed only the relationship between the federal government and the states, the American people are under multiple jurisdictions. A person not only pays his or her federal income tax but also may pay state and city income taxes as well. Property taxes are collected by counties and are used to provide law enforcement, build new schools, and maintain local roads.

Throughout the 20th century, the power of the federal government expanded considerably through legislation and court decisions. While much recent political debate has centered on returning power to the states, the relationship between the federal government and the states has been argued over for most of the history of the United States.
The constitutional framework

Although the Constitution sets up a federal system, nowhere does it define what federalism is. However, the framers of the Constitution were determined to create a strong national government and address the shortcomings of the Articles of Confederation, which allowed the states too much power. In terms of the balance of power between the federal government and the states, the Constitution clearly favors the federal government.

The powers specifically given to the federal government are not as relevant to the expansion of its authority as the Constitution's more general provisions; that is, Congress is to provide for the general welfare (preamble) and ". . . make all laws which shall be necessary and proper . . ." (Article I, Section 8). In the Constitution as ratified, there is no similar broad grant of powers to the states. It emphasized what states cannot do (Article I, Section 10) and gave them authority in just a few areas — namely, establishing voter qualifications and setting up the mechanics of congressional elections. This reduction in power was corrected through the Tenth Amendment, which reserved to the states or the people all powers either not specifically delegated to the national government or specifically denied to the states. The language in the general welfare and elastic clauses and the Tenth Amendment is vague enough to allow widely different interpretations. Because both federal and state governments can turn to the Constitution for support, it is not surprising that different concepts of federalism have emerged.
Dual federalism

Dual federalism looks at the federal system as a sort of "layer cake," with each layer of government performing the tasks that make the most sense for that level.

The initial framing and ratification of the Constitution reflected this theory. Even those people supporting a stronger national government proposed that powers in the federal government be distinct and limited, with certain tasks enumerated for the national government in the Constitution and the remaining tasks left to the state governments. Because this theory leaves each government supreme within its own sphere of operations, it is also sometimes called dual sovereignty.

One more-extreme outgrowth of this theory is the idea of states' rights, which holds that, because the national government is not allowed to infringe on spheres left to state government, doing so violates the states' constitutional rights (especially the Tenth Amendment, which specifically reserves undelegated powers for the states). Federal government action in those spheres represents an unlawful seizure of power by one level of government at the expense of another. This view has historically been popular in the South, where it was viewed as preventing national government interference in the region's race relations, but it has been invoked elsewhere as well.

The problem with taking dual federalism this far is figuring out who defines where one layer ends and the next layer starts. Before the Civil War, some voices said that, to protect their rights, states could secede from the Union or declare national laws that affect them null and void — but those arguments are no longer taken seriously. Instead, the U.S. Supreme Court resolves disputes within the federal structure, and because the Court is a national institution, it rarely favors the states.
Cooperative federalism

The theory of cooperative federalism emerged during the New Deal, when the power of the federal government grew in response to the Great Depression. It does not recognize a clear distinction between the functions of the states and Washington, and it emphasizes that there are many areas in which their responsibilities overlap. For example, drug enforcement involves federal agents, state troopers, and local police. The federal government supplies funds for education, but the state and local school boards choose curriculum and set qualifications for teachers. (Interestingly, attempts to set national standards for students in certain subjects have raised concerns of federal intrusion.) The notion of overlapping jurisdictions is expressed by the term marble-cake federalism.

Cooperative federalism takes a very loose view of the elastic clause that allows power to flow through federal government. It is a more accurate model of how the federal system has worked over much of U.S. history.
Federal-State Relations

Federalism is a fluid concept. Historically, the relationship between the two levels of government has been defined by the courts, Congress, and funding policies.
The role of the courts

Questions concerning the respective powers of the states and the federal government are constitutional, and the courts must address them. Early Supreme Court decisions reflected the views of Chief Justice John Marshall, who personally favored a strong national government. In defining commerce in the broadest possible terms in Gibbons v. Ogden (1824), he argued that Congress's power to regulate interstate commerce could be "exercised to its utmost extent." Marshall's interpretation of the commerce clause has provided a means to enforce civil rights laws and regulate wages, working conditions, and other areas that seem, at first glance, far removed from federal jurisdiction. At the same time, however, he believed the Bill of Rights imposed no restrictions on the states.

Throughout most of the 19th century and on into the 1930s, the Supreme Court did not follow Marshall's lead; it was reluctant to allow an expansion of federal power at the expense of the states. As the makeup of the Court changed with the appointments made by President Franklin Roosevelt, so did the direction of its decisions. In the areas of civil liberties and civil rights in particular, the Supreme Court and the lower federal courts have set national standards that states and municipalities are obligated to follow. Through their interpretation of the due process and equal protection clauses of the Fourteenth Amendment, they have brought about a significant transfer of power from the states to the federal government. This amendment, along with the Fifteenth and the Twenty-fourth, has largely restricted the authority of the states to determine who can vote and where they cast their ballots. The courts have directed how state and local authorities draw their congressional, legislative, and school-board district boundaries.

In recent years, the Supreme Court limited the powers of the federal government in favor of the states. United States v. Lopez (1995) held that Congress cannot prohibit guns in the area around a public school under the commerce clause. The Court also upheld Oregon's "death with dignity" law, which allows the terminally ill to end their lives, against a federal challenge, in Gonzales v. Oregon (2006).
The role of Congress

Legislation can compel states either directly or indirectly to take action they otherwise might not take. Again, civil rights provide a pertinent example. The 1965 Voting Rights Act intruded on the constitutional power of the states to set voter qualifications by challenging the literacy tests and poll tax that were used in the South to get around the Fifteenth Amendment.

A wide range of environmental laws establishes requirements for air and water pollution control and the disposal of hazardous wastes to which states and municipalities must adhere. These are examples of mandates.

Congress may also threaten to cut off funds if states do not implement a particular policy. Although a law forcing the states to establish 21 as the minimum drinking age or 55 miles per hour as the maximum highway speed might be unconstitutional, Congress can and did threaten to cut off federal highway funds to states that did not comply with the two limits. This is known as a condition of aid.
The role of funding policies

The most powerful tool the federal government has in its relations with the states is money. A grant-in-aid is funding provided by the federal government to the states or municipalities. The earliest federal grants were land. Under the Morrill Act (1862), the states received large tracts of land for the specific purpose of establishing agricultural and mechanical colleges (still known as land-grant colleges).

A categorical grant earmarks funds for a specific purpose. The two types of categorical grants are project and formula grants. A project grant is awarded on the basis of competitive applications; money from the National Institutes of Health or the National Endowment for the Humanities is awarded in this manner. While many project grants go to individuals, formula grants go to states and municipalities that meet the requirements described in the legislation. Depending on what the grant is for, factors such as the age, education, and income level of the population; the number of miles of highway; or the unemployment rate might be relevant to qualifying for aid.

A block grant is given for more general purposes than categorical grants — say, mental health, community services, mass transit, or job training — and state and local governments have a great deal of flexibility in how the money is actually spent. A county may decide to upgrade its buses rather than build a light rail system, for example. This does not mean, however, that strings are not attached to block grants. Recipients are bound by federal mandates. The county upgrading its buses may be required to buy a certain percentage of them from a minority-owned business or hire additional drivers from a training program for those on welfare.

Recent Trends in Federalism

A high-water mark in the shift of power to the federal government came during the administration of President Lyndon Johnson (1963–1969). This fact is not surprising because Johnson himself was a New Dealer and had faith in the ability of the federal government to address the country's problems. His administration pushed through major civil rights legislation as well as the programs of the Great Society, which included the War on Poverty and Medicare. Johnson's one important innovation was to direct more money straight to the cities and give nongovernmental agencies, such as community groups, a role in deciding how the federal resources would be used. The number of grants increased significantly, as did the size of the bureaucracy needed to manage them.
Richard Nixon and the New Federalism

Every president since Johnson has stated that the federal government is too large and that power should be returned to the states. Richard Nixon's attempt to do so was called the New Federalism. Its key component was special revenue sharing, under which tax money was returned to the states and cities. They could decide which of their own programs needed an infusion of federal dollars. In addition, categorical grants were combined into block grants.

Nixon's approach to federalism was not completely consistent. His administration saw the creation of the Occupational Health and Safety Administration (OSHA) and passage of the Clean Air Act, both of which imposed additional federal mandates on state and local governments. Even though revenue-sharing funds were largely unrestricted, accepting the money meant following the same federal requirements that applied to block grants.
Federalism under Reagan

Ronald Reagan came into the White House committed to giving the states more power. In practice, this commitment meant reducing federal domestic spending and encouraging the states to take over programs that had been Washington's responsibility. The states not only had to administer the programs, but they also had to find new sources of revenue to pay for them. The administration proposed, for example, that the federal government assume all costs for Medicare while the states take over food stamps and other direct welfare payments.

As a result of budget cuts, there was a sharp decline in federal aid to the states during the Reagan years. The states and municipalities responded by raising taxes, privatizing services (for example, contracting with private companies for trash collection), and cutting programs. Many states turned to lotteries to raise general revenues or to help fund specific programs such as education.
Ongoing mandates

If the relationship between the federal government and the states is to fundamentally change, it will come about through legislation. Recent laws, however, have added to the federal mandates. Every time Congress expands the eligibility for Medicaid or tightens the standards on air pollution, the costs to states and localities go up. Another example: No money was provided in the Americans with Disabilities Act to pay for retrofitting buildings to make them accessible to the handicapped.

Unfunded mandates became a hot political issue in the early 1990s. The issue was not only legislative requirements but also the consequences of what were perceived to be failed national policies. For example, Governor Pete Wilson of California, who ran briefly for the 1996 Republican nomination for president, argued that the states should not have to pay for the inability of the federal government to control the nation's borders. California's expenses for illegal aliens and their children include welfare and public education. Congress passed the Unfunded Mandate Reform Act in 1995. It requires the Congressional Budget Office to determine the fiscal impact of unfunded mandates that exceed $50 million and provide this information to members of Congress before they vote on a bill.
Where Americans stand

Polls indicate that in a comparatively short time, there has been a significant change in the way Americans view the relationship between the states and the federal government. In 1994, almost three-quarters of the population believed that the federal government was too powerful. This number contrasts sharply with 1987 data, which showed fewer than half of all Americans taking this position. Less than 20 percent thought the balance between the states and the federal government was about right in 1994, whereas the largest group of people was satisfied with the balance just seven years earlier. The 1994 poll also showed that Americans viewed state and local government as better equipped than Washington to handle a variety of domestic issues, ranging from crime to welfare to transportation. Anti-Washington sentiment was a factor in the Republicans gaining control of Congress in 1994. Once in power, House Republicans put forward their own legislative agenda know as the Contract with America, which stressed returning power to the states. Even though Americans were roughly split on who could best tackle healthcare, President Bill Clinton's reform proposals failed to gain much headway, in part because they were seen as increasing the federal government's role. On welfare, however, the Clinton administration took another approach: The Personal Responsibility and Work Opportunity Reconciliation Act (1996), better known as the Welfare Reform Act, used block grants to transfer control of assistance to the poor from the federal government to the states.

Although Republicans continued as the majority party in Congress during most of the Bush administration, the president expanded the federal role in an area traditionally left to states and local government. The No Child Left Behind Act (2001) placed new federal demands on public schools with the aim of improving student performance. Critics argue the requirements of the legislation came without adequate funding.

During the 1990s, new federal mandates were limited unless money was also provided to cover them. For example, the benefits illegal immigrants are entitled to were curtailed. Despite these changes, immigration remains a volatile issue between the federal government, states, and localities. Washington is often blamed for lax enforcement of existing immigration laws — failing to secure the border or not cracking down on employers who hire illegal aliens. A number of cities across the country enacted ordinances prohibiting people in their communities from knowingly employing or renting housing to illegal immigrants; other cities declared themselves "safe havens" for the undocumented.