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First, the notion that the federal government is "completely broken" is an easily discredited rightwing talking point. Social Security works, and Medicare works, unemployment insurance works. Various other programs work more or less effectively as republican control of at least some portion of the system has allowed over the last 30 years. Those portions of the federal government that republicans have intentionally disabled can be restored fairly promptly. Get the republican cronies out of management and things will improve. It is not all that tough, just put people in charge who have appropriate credentials and happen to believe in the mission.
States on the other hand present numerous problems. First among these is a sort of political Darwinism. In my experience, the best and brightest among the pols climb to the federal level, this is not a great personal commendation for their collective intellectual skill at the federal level, but more a statement of the variable lack of such skill on the more local level. So, in my experience working directly with elected officials, if you are looking for insight, creativity, and effectiveness, you are vastly more likely to find it in pols at the federal level. This does not mean that you will find it, as in general, pols are not a creative bunch, just that your odds are slightly better.
Second among these problems is the inherent and massive difference in resources available at the state level. Some states are quite poor and others quite wealthy. Restricting revenue and programs within these artificial borders will yeild a highly variable result. Places that are currently backwoods will stay just exactly where they are and such an arrangement will perpetuate this massive disparity and even enhance it over time.
The third problem is the inherent capacity of such an arrangement to drive a competition toward the bottom. Corporations are now on occasion far larger than our states. They will press for and obtain concessions on taxes and regulation from the isolated states, particularly the impoverished ones, in exchange for relocation of jobs, and as history has shown, only for short durations before they open the bidding war again. If you wish to enhance corporate power, few means other than a drive toward "states rights" could be more effective, which is why the insurance lobby presses for it now.
States rights is a colonial era construct that should have died at least 100 years ago.
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