I think technically this could be done, but it would be interesting to see what the result would be, and if a country could run on this principle.
Obviously there are some places where you will have overlap between the different levels. For example, I don't think the federal government should be completely, 100% out of education, but rather should have a reduced role so the teachers can do their jobs and educate.
Obviously these ideas would be difficult to implement and are also idealistic. For example, some states are poorer than others so their tax revenue may not be enough. But even given that, I think state and local governments having more power would be better for the people. And no, this isn't some states' rights dog whistle or whatever (I doubt any of you would accuse me of that, but people have).
Side note: I am a US citizen, but I live in the Czech Republic at the moment, so I would be interested to see a system which would be flexible enough to allow any government to utilize.
This actually seems like an interesting enough problem that I may try to code up a website where people can anonymously enter how much tax they pay (in currency amounts) and how they would allocate it (in %). Then try to do some aggregates to see how countries would compare.
Lack of interest (in the US) in local elections is a bit of a pet peeve of mine. Local government has a much larger impact on a person's day-to-day life. Spending on education is largely at the county/city level (while the state and federal governments provide funding, localities can increase the amount and has some discretion in allocation). Development, local roads, police & fire, healthcare - all by and large controlled locally.
But, I do agree, at the federal level, it often feels like we have very little control over taxation and spending.
I think a key thing is to view 'democratic' as meaning more than merely the opportunity to choose - the common narrative around what a 'democracy' is. Rather, it is the opportunity to participate in framing of the choices, without pre-existing powerful interests having disproportionate influence.
Noam Chomsky is an easy reach for a reference to some thought on the matter. He's written so much, but here's the first thing that I find: http://www.salon.com/2013/08/17/chomsky_the_u_s_behaves_noth...