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Federalism refers to the division of governmental powers between the national and state governments. The Founding Fathers created a federal system to overcome a tough political obstacle. They needed to convince independent states to join together to create a strong central government. Writing to George Washington before the Constitutional Convention, James Madison considered the dilemma. He said that establishing “one simple republic” that would do away with the states would be “unattainable.” Instead, Madison wrote, “I have sought for a middle ground which may at once support a due supremacy of national authority, and not exclude the states.” Federalism was the answer.

Under federalism, both state and national governments may directly govern through their own officials and laws. Both levels of government derive their legitimacy from the Constitution, which endows each with supreme power over certain areas of government. Both state and federal governments must agree to changes in the Constitution. Both exercise power separately and directly over the people living under their authority, subject to the limits specified in the U.S. Constitution, the supreme law of the country. The Constitution and acts of the national government that conform to it are superior to constitutions, laws, and actions of state and local governments.

In the American federal system, the national (federal) government has certain powers that are granted only to it by the Constitution. The 50 state governments also have powers that the national government is not supposed to exercise. For example, only the federal government may coin money or declare war. Only the state government may establish local governments and conduct elections within the state. Some powers are shared by both federal and state governments, such as the power to tax and borrow money. Some powers are denied to the federal and state governments, such as granting titles of nobility and passing bills of attainder.

The individual states all have republican forms of government with a senate and a house. (There is one exception, Nebraska, which has only one legislative body of 49 senators.) All have executive branches headed by state governors and independent court systems. Each state has its own constitution.

In the American federal system, the powers of the national government are limited. However, within its field or range of powers, the national government is supreme and modern judicial interpretations of the Constitution have expanded federal responsibilities. But the states can neither ignore nor contradict federal laws and the Constitution. The core idea of American federalism is that two levels of government (national and state) exercise power separately and directly on the people at the same time. Under federalism, the state of Indiana has authority over its residents, but so does the federal government based in Washington, D.C. Indiana residents must obey the laws of their state government and their federal government.
Federalism is a central principle of the Constitution, but the balance of power between the state and national governments was not defined exactly at the Constitutional Convention of 1787. Since then, debates about the rights and powers of states in relation to the federal government have continued.

Federalism within the United States system is the balancing of power between a Federal Government and State Governments. Within this system the Federal Government is superior to the State Governments. For example, a state could not pass a law that directly contradicted a law passed on the federal level. Within these principles, power is divided among the federal and state governments.
The US Constitution specifically states what types of powers are to be granted to what governments.

- Delegated Powers - To delegate means to specifically assign, in this case delegated powers are those powers specifically assigned to the Federal Government. The founding fathers feared a national government that would overstep its bounds, so they took care to only allow the national government very specific powers. These are also referred to as enumerated powers.

- Reserved Powers - To reserve is to save, in this case all powers not specifically delegated to the Federal Government are to be reserved or saved for the State Governments.

- Concurrent Powers - Concurrent means "at the same time", in this case concurrent powers are those that both the federal and state governments have simultaneously.

- Implied Powers - These are powers that are NOT specifically delegated in the Constitution, but are understood to be necessary or allowed. The elastic clauseornecessary and proper clauseallows these by stating that Congress has the power "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers" (art. I, sec. 8). Examples include:

Hamilton's creation of the National Bank - no power to create banks is delegated the Federal Government, however it was deemed necessary and proper to form a bank to aid in Congress's power to coin money and regulate the economy.
Regulation of Railroads, Shipping, Highways - Congress is delegated the power to regulate interstate trade and as such it is implied that Congress also has the power to regulate interstate transportation by which interstate trade is made possible.

- Denied Powers - These are powers that are specifically NOT allowed to either the federal or state governments. Again, this listing of denied powers was a specific way in which the founding fathers attempted to create a limited government.

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