Trends in Federal-State Taxation Relationships

Abstract

From the Civil War reconstruction period to about 19I2. the relationships between the tax program of the federal government and the plans of the states were reasonably satisfactory. For most of this period there was well-nigh complete separation of sources of federal and state revenues, and the duplications which existed were of no essential importance. The World War period and its aftermath brought essential changes, leading to duplicate federal and state levies. The alterations appeared primarily in the fields of income, death, and commodity taxation. Although several state income taxes had been on the statute books for many years, enactment of the Wisconsin income tax in 1911 marks the real beginning of the modern movement toward income taxation in the American commonwealths. The development was not particularly rapid in the years immediately succeeding, but it has been consistent throughout the ensuing twenty-five years. Meanwhile, in 1913 the income tax amendment to the federal constitution was approved; and the federal government immediately launched a program of taxation on the basis of income. Because of the revenue necessities growing out of the American participation in the World War, the federal income tax was rapidly extended, so that in the course of five years following approval of the amendment the federal government was utilizing income taxation as its primary revenue source. The federal policy doubtless retarded rapid growth of state income taxation in the period following 1917, but the states did not retire from the income tax field.