About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1972 Memorandum on Allocation of the Federal Tax Burden and Federal Grants-in-Aid by State [1] (1972)

handle is hein.tera/mallocbufe0012 and id is 1 raw text is: MEMORANDUM ON ALLOCATION OF THE FEDERAL TAX BURDEN AND FEDERAL GRANTS-IN-AID BY STATE Since Federal tax collections data (published by the Treasury Department) do not accurately reflect the tax burden by state, Tax Foundation, in cooperation with other organizations, has developed a special allocation formula to distribute the Federal tax burden by state. This distribution of the Federal tax burden, both Federal funds (excluding trust fund taxes) and total taxes (including trust funds), as estimated for fiscal 1972, is given in Table 1. The total tax burden is consis- tent with the official unified budget concept introduced with the 1969 Budget presen- tation. The bases used for estimating tax burdens appear in Schedule A. Essentiall: the same method and bases have been used for the derivation of these estimates for the past eight years. However, in 1966 a change was made in one base for allocating the corporation income tax burden; it was a statistical revision which limits the comparability of current estimates and those for prior years. Previously, one-half of the corporation income tax burden was allocated in proportion to the distribution of dividends by state. Since 1966, total property income (see Survey of Current Business,August 1971, pp. 32-36), has been substituted for dividends in this portion of the allocation. The underlying theory is that all forms of income from property-- rents, interest, and dividends--are affected by the imposition of the corporate income tax. Another change was made in the estimates, beginning in 1969, when, for the first time, state unemployment insurance taxes deposited with the Treasury were included in the total tax burden. This change was made to conform to the new unified budget concept in which deposits of state unemployment insurance taxes in the unem- ployment trust fund are classified as part of total budget receipts. Two further changes in the estimates, beginning in 1972, were made. Taxes earmarked for the Airport and Airway Trust Fund, established in 1971, are now included in the total Federal tax burden. Formerly, some of these tax revenues were included in the Federal funds estimates under other excise and customs. The other change was made in the basis for allocating the alcoholic beverage excise taxes. Prior to 1972, one-half of the alcoholic beverage excise taxes was allocated accord- ing to the distribution of personal income and one-half according to consumption. Beginning in 1972, the alcoholic beverage excise taxes are allocated according to consumption data alone. The theoretical basis for this change is that it is assumed that consumers alone bear the burden of this excise tax. One purpose for which the Federal tax burden estimates can be used is demonstrated in Tables 2 and 3. Table 2 shows the tax cost of all Federal grants- in-aid to state and local governments, including payments financed through trust funds. Included in grants financed through trust funds are airport and airway aids. In previous years these grants were financed through Federal funds. Table 3 shows the tax cost of Federal grants, excluding those which are made through trust funds. It must be borne in mind that these comparisons of Federal tax burdens for aid payments per $1.00 of assistance do not actually indicate the entire cost which state and local governments incur for obtaining Federal grants. The comparisons, with few exceptions, do not take into account the costs to these governments of administering the programs for which the aid is granted, nor the amounts of matching funds which the state and local governments must make available out of their own revenue in order to qualify as recipients of these grants. In fiscal 1971 state- local matching funds accounted for an estimated 10 percent of general expenditures out of their own revenue sources, or between $11 and $13 billion. Further explanation of the formula -- its derivation, uses, and limita- tions -- is contained in Tax Foundation's Research Aid No. 3 (Revised) Allocating the Federal Tax Burden by State, December 1963. Tax Foundation, Inc., February 15, 1972