You also create a strong incentive for states to fight over the most productive citizens and offload the most expensive ones to other states. Is that really a position you want to put people in, as a leftist? Texas or New York or wherever doing whatever they can to force their poor people to move?
State sovereignty in economy and decisions does have downsides. However, downsides can be prevented with proper ideology. If a certain state has welfare that helps the poor and expensive people, that is due to the ideology of the state that is unmotivated by economical gains. I doubt that a state would accept people from other states on its welfare in too large amount. After all, the sovereign welfare states dont appreciate too large burden on their economies. It would be bad if they did.
The difference between federation and confederation is that:
Federation doesnt give full sovereignty to the states.
Confederation is by definition voluntary union of sovereign states.
USA is a federation. Not a confederation.
Its obvious that "poor states" or "states with lots of poor people" cannot afford welfare economy without external help. In case of confederation, poor people in those states would mostly depend on mercy. Would it be better? Yes, it would be probably better.
Welfare economies are sometimes a failure due to "people abusing welfare".
Abuse can be mostly prevented by "welfare economy covering the significant part of the cost or supplementing the wage" as opposed to "giving stuff for free on demand".
Leftists often argue for welfare economy, but they dont agree with each other on how it should be managed. It is true that welfare is better managed by states individually if those states are controlled by federal government that makes them all agree to welfare economy.
However, I do think that leftist welfare is possible in confederation too. States individually can be welfare states. They just have to prevent people abusing welfare.