In most blue states at least, President Trump’s second term is creating a battle over how the states can use federal money. Many Democratic governors are suddenly defending state control and pushing back against Washington’s influence.
But the reality is that too many states resemble satellites orbiting Washington rather than sovereign governments charting their own course.
In 2022, more than half of Louisiana and Alaska’s budget came from federal funds. Twenty states receive more than 40 percent of their dollars from Washington. North Dakota is the supposed bright light at just over 22 percent.
To regain federalism’s footing, states need to reassert more political courage and financial independence from Washington’s tentacles.
Trump, who found a winning electoral issue on opposing transgender ideology, threatens to pull education funds from states that fail to comply. Trump quickly repositioned the intent of the Title IX law back to its original purpose, calling for only biological females to compete against biological females in athletics. States like Maine strongly oppose the requirement. Rather than reform their reliance on federal dollars, however, states typically respond by suing to keep the federal spigot flowing, reinforcing perpetual dependence over fiscal disentanglement.
Some states use federal dollars to mask over budget shortfalls, even using money to indirectly subsidize state tax cuts. Federal aid too often lets states avoid the hard budgeting and governance decisions that should fall to lawmakers.
The most obvious example is the Medicaid expansion under the Affordable Care Act, where the federal government sweetened the pot for states by covering 100 and then 90 percent of the cost for able-bodied, working-age, childless adults.
It’s important to remember that while states were receiving these 90 percent reimbursement rates from the Feds for this population, another group of Americans were being pushed to the back. The disabled, pregnant women, and children — those for whom Medicaid was originally designed — have had to fight for healthcare access as the result of federal interference. Some states even enshrined expansion into their state constitutions while looking the other way when it comes to unsustainable federal spending levels.
It remains unclear whether the federal government will make a serious effort to achieve meaningful Medicaid savings — even if it means limiting coverage for able-bodied but nonworking childless adults.
Medicaid expansion has become an elaborate money-making endeavor for states to harness more and more from taxpayers with no skin in the game. “All these tactics let states rake in massive federal dollars without any state cost and reduce the pressure on state policymakers to responsibly govern and weigh tradeoffs between spending and tax policies,” wrote Brian Blase, president of Paragon Health Institute.
Although fraud and abuse under expansion is too lengthy to document, a 2019 Pelican Institute report after expansion in Louisiana noted that 1,672 Medicaid recipients had incomes over $100,000, and at least one household had an income higher than then-Gov. John Bel Edwards (D). A 2025 report from the Foundation for Government Accountability reveals how California exploits funding loopholes to cover illegal immigrants under Medicaid, costing federal taxpayers nearly $10 billion in clear violation of federal law.
Disaster relief is another example. So much aid comes from the federal government, often 75 percent when an emergency declaration is made, that it can heavily disincentivize states from building their own rainy-day funds. It also reduces the incentive to invest in infrastructure resilience or take proactive steps to mitigate risk. The result is greater dependence on Washington, rather than increased responsibility.
After Hurricane Helene, some federal lawmakers tried to deregulate disaster relief, but as North Carolina’s John Locke Foundation warns, “the fiscally unstable federal government cannot be counted on to be a reliable partner in disaster relief efforts.”
Ultimately, given Washington’s dysfunction and inability to prioritize spending, the political environment provides not just an opportunity to question federal funds, but lower the political temperature by making more decisions at the state and local level.
Federalism is more than a dusty concept to admire from afar. It’s a set of common-sense principles to restore trust in government and give people real power over their communities and destiny. The alternative is for Americans to continue watching their states orbit as satellites of expanding federal power, letting Washington’s dysfunction pull us further away from self-government.
Ray Nothstine is a senior writer and editor and a Future of Freedom Fellow at the State Policy Network. He manages and edits American Habits.
