Getting the State involved is just a different, much worse threat actor than Google, though. From this discussion it should be evident how much more sovereignity passwords give you, if you want the State involved it should regulate websites' policies on passwords, such as: no service shall be hostile to password managers (special character bans, short limits on length, no pasting), no service shall require regular password resetting (proven to worsen security).

State involvement may be better used in policing, too. Public repositories of leaked passwords (without usernames, of course) would do wonders, for example

I use a layered approach for passwords. If I don't trust the site and they're not getting my financial information, I'm glad to use Password1234%

Google frequently warns me that one of my passwords has compromised but I don't really care for those sites.

So then the State can see what services I've signed up for, when and where?

The State is always more difficult and dangerous to deal with than a private company.

Of course it is.

Google can ban me (really just one specific digital instance of me) from their services. The government can throw me in jail, take all my property, fine me whatever amount they want, etc.

The State is significantly less interested in your activities than Google, regardless of whatever hypothetical you'd care to spin.

a state has a monopoly on force, you've obviously never lived under a regime which actively wants to harm you.

Odds are neither have you.

You can use a third-party password manager to handle passkeys. I recommend Bitwarden personally.