A system of such exquisite complexity that it be viewed but not understood

From Think Carefully Before Cutting Off Subsidies to Red States by Megan McArdle.

There has long been an assumed truth that high productivity (but also high debt and high tax) Blue States are net contributors to the Federal Budget. McArdle is pointing out that it is not true today if it ever was and that the truth is, as always, far more complex.

Which got me thinking: Is it even true that red states are net recipients of blue state largess?

In fact, it’s not as clear as liberals think that the system consists of “Makers and Takers,” with the blue states making the money, and the red states taking it. That belief seems to come from a years-old graphic, based on data that dates back to the middle of the George W. Bush administration. Since then, the electoral and economic maps have both changed a little bit. Thankfully, New York State has helpfully updated us, at least to 2013.

She delves into the details before hitting something of a complexity impasse.

So let’s break it into two questions: Why do states send a lot of money to the federal government? And why do they take a lot of money out?

The answer to the first question is pretty simple: The U.S. federal income tax is steeply progressive, meaning that it brings in most of its revenue from high earners. If your state has a lot of people with high incomes in it, you will send a lot of taxes to Washington.

Why money comes back to your state is a little more complicated. Pew has helpfully broken down federal transfers into five categories:

Retirement benefits
Non-retirement benefits
Grants (mostly transportation, education, housing and Medicaid)
Government contracts for goods and services
Salaries and wages

Most of the transfers do not come from “red state welfare” like agricultural subsidies. They derive from Social Security, Medicare, Medicaid, unemployment insurance, food stamps, welfare, the maintenance of the national highway system, the purchase of goods and services for the federal government, and the operation of federal facilities and lands.

If blue state liberals consider this out of whack, what do they want to change?

Do they want to move toward a flatter, less progressive federal tax code?
Do they want to cut Social Security, Medicare and Medicaid?
Do they want to return unemployment insurance and similar entitlement programs entirely to the states?
Do they want to hand over the national parks to the states, or privatize them?
Would they like to downsize the federal workforce?
Should we redistribute military bases from red states to blue? (Those relocations might meaningfully alter the state electorate, making it easier for Republicans to get elected. They would also require the purchase, by eminent domain, of a lot of prime blue-state land that has things like beach houses on it.)

There are good arguments against all of these propositions. And arguably we don’t transfer enough in grants to poor states, which lack the fiscal capacity to provide basic services that come relatively easy in rich states.

But then she counters:

But on the other hand, one can make an argument, from fairness and federalism, that these transfers are simply too large, too unbalanced; that it’s time to return social services to the states, and turn the federal government back into something like what it was before the New Deal: a referee between the states, a coordinator of inarguably national concerns like national defense, but not the guarantor of a vast and comprehensive social safety net.

Maybe the system is now so unfair to rich liberals that this is the way we should go. And given how impossible it is for them to get anything done in the federal government these days, blue-state liberals might want to offer Republicans a compromise: We’ll get rid of federal taxes and programs, and it’s every state for itself. If you genuinely think it’s an outrage that red states collect so much federal money, you should probably be eager for the trade.

But think carefully before you make that proposal. Because if liberals offer to dismantle the New Deal and return to genuine federalism, they might just find that Republicans are eager to take that deal.

We have built a system of such exquisite complexity (and unintended consequences) that it is resistant to either easy summary or wholesale reform.

As discovered when we attempted to reform 1/6th of the economy and healthcare through monopartisan legal maneuvering and Presidential edicts. Well intended, doomed to fail and doomed to fail in ways that often were not, could not be anticipated. Which is not to say that it did not also fail for reasons that were entirely predictable and were indeed predicted.