The Myths of Tax Sharing

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THIS ARTICLE consists mainly of the contents of a letter written by me on April 12, 1967, to Senator Howard H. Baker, Jr., a member of the United States Senate Committee on Government Operations and the author of a bill that is discussed here and in my letter. This letter has been rather widely circulated in published and unpublished form since it was written. A brief preliminary note about the Senate bill which is its topic seems to called for. The bill sets up in the United States Treasury, starting in fiscal year 1967, a new to called the trust fund. Into this fund, in 1967 and in each later fiscal year, are to go (a) 1 per cent of the net Federal tax of that year (after deducting from total tax revenues [i] the costs of interest on the national debt, and other debt service costs, and [ii] the costs of national defense); and (b) such funds as Congress may decide to add to the in any year. The bill further provides that each state shall in each year be entitled to payments out of the trust fund of an amount determined by the use of a formula set forth in the bill, based on certain weighted factors, including the state's population, the average income of the people of each state, a need factor, and a effort factor-a formula too complicated to analyzed within the short space of this article. A calculation prepared in the Legislative Reference Service of the Library of Congress on the basis of 1966 figures shows that, after deducting national defense and debt service costs from the total (net) federal tax collections, there would have been in 1966 some $51,833,362,000 left, of which 1 per cent would have yielded $518,333,000 for distribution among the in that year. An accompanying table of estimates, based on the proposed distribution formula, shows that this sum would have yielded the individually from $51,053,000 for California, $46,557,000 for New York, $30,917,000 for Texas-down to $1,227,000 for Wyoming, $1,124,000 each for Delaware and Nevada, and $716,000 for Alaska. But this is on the basis of a 1 per cent distribution, and few proponents of tax seem to intend to stop at that. (See Congressional Record, which is cited in the letter following.) It is the writer's conclusion that the proposed tax-sharing measure, far from helping to rehabilitate the states (as if they needed rehabilitation!), will do nothing of the kind. One who has read some American history can look upon it as nothing more than another old-fashioned raid on the national treasury. Furthermore, instead of making the stronger and more independent, its tendency will to make them more dependent upon the national government. As the proposed one-way sharing takes root and grows increasingly large, United States senators and representatives in Congress will necessarily find more and more reasons for prying into the affairs of their own states, and of all the state governments. Thus national surveillance of state activities and state services of all kinds will increased. The distinction between national and state functions will become increasingly blurred. The old saying that he who pays the piper calls the tune may outdated, but it still has some validity. The writer finds it hard to understand how at this time of long-continued prosperity, with unemployment at a low point, and the evidences of increased private spending on ever larger scales present on all hands, important leaders of the should have found it necessary to try to get a foothold in the revenues of the national government and to become dependent upon it. Under the Constitution of the United States the have very wide powers of taxation, and the national government has by no means preempted the entire field. What has happened to state leadership? These are questions that future historians will find puzzling, and no doubt they are just as perplexing to other present-day observers as they are to this writer.