Counter‐Cyclical Property Taxation1

Abstract

trusted with the task of maintaining a stable level of economic activity without much fiscal cooperation from local and state governments. However, tax experts and economists long have been concerned with how to coordinate local expenditures and revenues with the ups and downs of business in order that stabilization and counter-depression policies of the federal government may be made more effective. By examining the chief types of services performed at the state and local levels, and by investigating state and local financial statistics during the past few decades, we observe that expenditures by local and state governments have been inflexible downward. Federal expenditures, on the other hand, have fluctuated much more widely over the years; presumably because they are much influenced by national security expenditures. As for tax revenues, federal government (as well as the state governments) revenues have demonstrated much more violent fluctuation than have local revenues over the cycles. The cyclical behavior of tax bases upon which governments assess a major portion of total taxes accounts for the phenomenon. About 90 per cent of local tax revenues has been derived from general property taxation for the past few decades, whereas the state governments assess less than 5 per cent of total tax revenues from general property taxation; and the federal government, of course, assesses no property taxes. Just as the property tax is the pillar of local revenues, individual income and corporate income taxes are backbone of federal revenues. In the states, consumption taxes seem to be the major source of revenues. In the fiscal year 1952, property taxes amount to 88 per cent of total local tax collections; consumption taxes are 58 per cent of total state tax collections (state individual and corporation income taxes represented 18 per cent of total taxes). Individual and corporation income taxes were 82 per cent of total federal tax collections.2 In terms of cycle-sensitiveness, federal revenues are the most sympathetic; state revenues rank next (consumption expenditures, the tax base for most state