Trump’s Big Beautiful Bill Can Restore Fiscal Federalism

As debate swirls around President Donald Trump’s One Big Beautiful Bill (BBB), one key issue remains overlooked: the role of state and local governments. These institutions were once the backbone of public investment and accountability, and BBB could pave the way for them to reclaim that role. In this sense, the legislation represents not just a chance to rein in Washington but an opportunity to begin restoring balance and responsibility at all levels of government.

It will no doubt surprise most Americans to learn that from the founding of the country until the early 1930s, state and local governments combined outspent the federal government. Federal spending averaged a mere three percent of GDP each year, roughly half of the state-and-local share. State legislatures and city councils built the infrastructure of America.

Importantly, local control meant local accountability. If a school failed or a road crumbled, voters knew exactly who to blame and how to fix it. This wasn’t just efficient. It was the American way.

As a result, other than occasional wars and recessions, federal budgets remained balanced throughout most of American history. Surpluses for nearly thirty years after the Civil War helped reduce debt, while the economy flourished with low unemployment and rising real wages. The recessions of 1873 and 1893 resolved themselves through market growth, not massive government stimulus. Federal spending focused primarily on national defense and trade, creating fertile ground for private enterprises, which made America the world’s richest nation by the early 1900s.

More than just public policy, local and state preeminence over total government spending was a cultural norm and a deeply held American principle. Those institutions closest to voters – state and local governments – were the center of gravity in American politics.

But an ideological shift appeared in U.S. fiscal policy around the Great Depression, when early progressives cited British economist John Maynard Keynes as license to expand federal spending in the name of growth. Keynes argued that the government could cure recessions by piling on debt and spending more, chasing short-term gains while ignoring long-term dangers and the threat to economic productivity.

President Franklin D. Roosevelt’s New Deal programs habituated the American government to Keynes’ borrow-and-spend addiction. Even though Keynesian economics cost the country more than it was worth, the benefits were targeted, easy to see, and useful for politicians to exploit to win reelection.

Seemingly overnight, Washington was hooked – and so were state and local leaders.

Federal spending hasn’t just crept up over the last hundred years; it has exploded. From just three percent of GDP in 1930, it ballooned to 15 percent by 1950, surpassed 20 percent in 2008, and today is hovering around 25 percent. The bulk of this federal spending growth has gone to transferring money from those who earned it to those who have sufficient political influence to take it.

Meanwhile, state and local spending during this same period has remained at about 11 percent of GDP. That means federal spending is now more than double what states and local governments spend combined, completely inverting the equation.

President Trump and congressional Republicans understand that if the federal government is ever going to pay down its debt and reverse nearly 100 years of failed fiscal policy, it must begin with a bold start. No one views BBB as a one-step panacea to our century-long fiscal malaise. But it does mark a decisive shift in America’s financial trajectory.

The bill specifically delivers $1.7 trillion in mandatory savings, the largest in U.S. history, and locks those savings into permanent law. These reforms don’t just trim around the edges, they fundamentally restructure entitlement programs and roll back the reckless spending commitments of the Biden era. Unlike traditional budget bills that shuffle numbers for optics, this reconciliation bill tackles the real drivers of long-term debt head-on and begins restoring discipline to the federal ledger.

The greatest repudiation of Keynesian theory by BBB is its plan to unleash economic growth. By eliminating taxes on tips and overtime pay, the bill rewards hard work and puts more money directly into the hands of working Americans. It also delivers regulatory relief and stability by making Trump’s 2017 tax cuts permanent, giving businesses the confidence to hire, invest, and expand. With lower taxes, fewer mandates, and a lighter federal footprint, the bill sets the stage for stronger job creation, higher productivity, and real wage growth.

When combined with increased tariff revenues, spending cuts, and regulatory rollbacks, the Trump administration’s actions will reduce the deficit by over $6.6 trillion in the next decade.

Critically, these spending cuts will create room – and need – for state and local governments to re-assert themselves. The states can regain their status as “laboratories of democracy” as the founders envisioned.

That’s the kind of generational change America needs. To reverse a century of federal overreach, Americans must treat this as the first chapter in a campaign for the next hundred years to revive federalism, restore local control, and finally put government back in its proper place.

If Republicans are serious about reviving the Constitution, and if Democrats still believe in local voices, then this bill deserves bipartisan support. Let Washington return to its rightful size. Let states rise to meet their rightful responsibilities. Let American government look more like America again.

W.J. Lee has served in the White House, NASA, on multiple political campaigns, and in nearly all levels of government. In his free time, he enjoys the “three R’s” – reading, running, and writing.