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the growth of corporations, of diversified classes of intangible property, and of classes of tangible property having no fixed status, as well as the added requirements of new tax revenues, contributed to the inadequacy of the old property tax both as to amount of revenue it could produce and as to the equity of utilizing this revenue source for substantially the entire tax needs of States and localities.

These and other developments rendered it essential to devise State and local methods of taxation which had formerly not been employed. Most of the methods actually developed were not new in principle but represented simply a wider application or in many instances a new application of tax measures most of which had been employed in Europe for some time, and a number of which had been employed on a minor scale in the United States.

The most generally accepted State and local revenue sources (aside from commercial and industrial activities which may for present purposes be ignored were inheritance and estate taxes, income taxes, motor registration and gasoline taxes, general sales taxes, and selective excises, particularly excises on alcoholic beverages and tobacco. In some States, the variety of special excises is very extensive indeed.1

The developments outlined above with their concomitants resulted in two major financial difficulties of the present time. In the first place, many of the State and local revenue measures duplicated, or at least overlapped, tax measures employed by the Federal Government. Thus, liquor taxes, which have become general throughout the States after repeal of the prohibition amendment and which had been used by States prior to prohibition only to a limited extent, are, in large part, a duplication of revenue measures which have been traditionally employed by the Federal Government. On the other hand, death taxes and gasoline taxes, established State revenue sources, have in recent years begun to be exploited by the Federal Government. In addition, there are measures, such as the corporate and individual income tax, which are neither distinctively Federal nor clearly State taxes-speaking historically. In connection with these measures, notably death, income, and liquor taxes, there are serious complications of a legal, administrative, and economic character other than merely the duplication of rates. For instance, taxpayers must incur great expense in preparing their corporate income-tax returns, and the diversity of practice as between the different States and as between the States, on the one hand, and the States and the Federal Government, on the other, occasion extraordinary additional outlay in order that the taxpayer may be able to ascertain his liability."

With conflicting taxation, however, we are here only incidentally concerned. A second and more directly important issue for present purposes is the extraordinary diversity of ability to support public activities in the various States and the sheer inability of the States, whether rich or poor, to reach certain aspects of taxable capacity which, in this country, can be reached only by the Federal taxing power.


Convincing evidence of the seriousness for proper support of education and other public services of unequal taxable resources in the several States will be found by examining the statistics of State and local revenues produced by specific important taxes other than those on property.

It is generally taken as a matter of course that the gasoline and motor registration taxes are about equally available to the various States. In point of fact, this is not the case, as evidenced by the fact that in the past 6 or 8 years, eight States have received almost exactly 45 percent of the total State gasoline tax revenue and 55 percent of the total motor registration tax revenue, despite the fact that the average rates imposed in these States are substantially lower in both cases than the average rates imposed in the remaining 40 States. Indeed, so far as the gasoline tax is concerned, the average rate in these eight

1 Consider especially the highly diversified system of excises in combination with death, income, motor registration, and gasoline taxes to be found in South Carolina and Kentucky at the present time.

2 See Martin and others, Conflicting Taxation, for development of this point. The statistics in this section are based primarily on Division of Research and Statistics of U. S. Treasury Department, Collections from Selected State-Imposed Taxes, 1930-36, on State Revenue, 1936, a prepublication draft for the Twentieth Century Fund's Survey of Taxation in the United States, and on the author's Conflicting Taxation.


States is only roughly three-fourths as high as the average in the remaining States. The inequalities of motor registration and gasoline productivity, however, are less than those found in the case of any other newer sources of revenue. If the situation respecting corporate income taxes, which are to be found in two-thirds of the States, be examined, it will be found that the inequalities are tremendously greater. In the last 6 years, half of the entire revenue derived from corporate income taxation in all the States has accrued to the State of New York. On the whole, it may be said that four States have enjoyed 80 percent of the entire revenue from corporation income taxes and only two of the four have imposed rates as high as the average for the States that levy such taxes. It is perhaps significant to remark that North Carolina, one of the four States receiving the largest volume of revenue from corporate income taxes, is, in terms of other measures, a relatively poor State; and Wisconsin, a second State included among the four, is certainly not one of the richest States in the Union.

Turning to the field of individual income taxation, it is found that, of the total revenues derived by approximately two-thirds of the States from this source, three commonwealths have invariably received between 80 and 90 percent of the aggregate revenue produced by personal income taxes. In 1935, New York received almost 60 percent of the total; and, for the entire period of 6 years examined in the Treasury report, New York enjoyed on the average more than half of the total revenue. As in the case of corporation income taxes, the showing from these data is even more convincing when it is considered that two of the three States had substantially lower than average rates during the period under examination.

To take only one other example of this character, consider the field of estate and inheritance taxation. Throughout the period 1930-35, inclusive, the Treasury figures show that almost exactly one-half of the total death tax revenue accrued to two States. In 1935, 45 States imposing death taxes received 51 percent of the revenue and two States enjoyed 49 percent.

Some specific examples, taking account of differences in rate structures, may be of interest. Among the highest individual income-tax rates found anywhere in the United States are those imposed in Idaho, Montana, North Dakota, and Oklahoma. However, the revenue in these States for 1936 was respectively $380,000, $228,000, $222,000, and $1,668,000. On the other hand, Massachusetts, with a very moderate rate, raised $16,727,000; New York, with fairly high rates but not so high as those compared above, raised $85,902,000; and California, with low average but high maximum rates, secured $6,526,000.

The achievements of the several States in the field of corporation income taxes may also be examined. Alabama, with a flat rate of 3 percent, raised $352,000; and Utah, with the same rate, raised $508,000; while Virginia enjoyed $1,800,000, and Connecticut, with only two-thirds as high a rate, secured $3,549,000. South Carolina, at 4.5 percent, raised $1,293,000, whereas North Carolina, with a 6 percent rate, with the assistance of the tobacco industry, succeeded in producing $5,856,000.

The same considerations are brought out still more forcibly if it be observed that North Dakota, the State imposing the highest individual income-tax rate, can derive about 15 cents per capita from this source and Delaware, with rates ranging only from 1 to 3 percent can derive revenue of approximately $3 per capita. Minnesota raises roughly half a dollar per capita by means of its individual income tax and Massachusetts approximately eight times as much, while New York secures about seven and a half times as much.

The situation is similar as respects the productivity of corporate incometaxes, though the differences are more extreme. With a rate of almost half that of New York State, Arkansas raised 6 cents per capita and North Carolina $1.48 per capita from corporate income taxes in 1934. Although North Dakota's corporate rate was three-fourths that of New York, the revenues per capita were only one sixty-fifth as much.

Enough has already been said to show concretely that the possibilities of any specific tax measure are very much less in some States than in others, and to indicate that the particular States in which a given tax can be a success from a revenue viewpoint differ with the different revenue measures. Generally speaking, certain States, as, for example, New York, New Jersey, and Delaware, are likely to be successful with any type of tax measure. On the

The number of States imposing corporation income taxes at the beginning of the 6-year period was somewhat less than at the end, but the difference is not sufficient to alter greatly the general conclusions to be drawn from the discussion in the text.

other hand, North Carolina is comparatively successful with corporation income taxes and comparatively unsuccessful with most other types of tax measures-as measured by the experience of the North Atlantic States. Moreover, the statistics which have been presented will convince the most skeptical that the tax effort made is in no sense commensurate with the revenues produced, either in the aggregate or in terms of a uniform measuring stick such as the total population.

It is worthwhile to emphasize that the inequalities in revenue with a given amount of tax effort vary more widely in respect of the superior tax measures than in respect of those which experts regard as inferior.5


As a tax administrator, I should observe that, in connection with income, inheritance and all types of corporation taxes, the State administration is faced with serious difficulties. One of the most obvious troubles is that the State in which income is earned is in many cases a different State from that in which the taxpayer resides. If, for example, a stockholder of the Louisville & Nashville Railroad lives in Delaware, Ky., in which much of the Louisville & Nashville properties lie, has no jurisdiction whatever to tax the stockholder's dividends. If the railroad borrows from a creditor in New York, the creditor's income from his ownership of an Louisville & Nashville bond is subject to tax in New York but not in Kentucky. Since many Louisville & Nashville stockholders actually live in Kentucky, the situation faced by the State of Texas in respect of the sulphur business, which is almost a natural Texas monopoly, or the copper mining business of Montana, is more serious in that practically every owner and also practically every creditor live outside the State. Therefore, the resources of Kentucky, Texas, or Montana, as the case may be, are utilized to enrich a person subject legally to the taxing jurisdiction of some other State, both as to income and as to inheritance or State taxation on the transfer of property at death.

It is important to keep in mind that the fiscal and economic advantages enjoyed by certain States and the handicaps facing other States are an offshoot of the integration of economic life brought about by the improvement in the means of transportation, communication and industrial production generally, and in the modernizing of methods of doing business. It is, from the point of view of the New Yorker, accidental that he lives in the State which serves the entire country as a gateway to the Old World, and which constitutes the financial capital of the United States. The resident of Georgia, northern Michigan, New Mexico, or Washington has no right to condemn the resident of Delaware, Pennsylvania, or Illinois because he lives in a community which enjoys certain economic advantages that reduce the tax rate for a given level of revenue productivity. On the other hand, there is no reason why the resident of California should object to having some gasoline money, contributed in that Commonwealth by the residents of all States, utilized on the roads of other States, or why the income taxpayer of Delaware, Massachusetts or New York should object to having the Federal Government spend some of the proceeds on guaranteeing that their population's economic_and social efficiency will not be impaired by the untutored from neighboring Maryland or Virginia, which do not enjoy equal income-producing opportunities, but which contribute to the income of Delaware, Massachusets, and New York.



The methods by which the conflicts in taxation, on the one hand, and the inequalities in ability to support public activities, on the other, can be reduced may be divided into four classes. The following enumeration of these various classes of suggestions proceed from those doing the least good and at the same time most consistent with the tradition of our Federal type of government to those which are more effective as remedies and which, at the same time, depart farthest from the traditions of federalism:

(1) Intergovernmental comity.-The States may cooperate with each other in the reduction of border difficulties and with the Federal Government to

5 Cf. Mark Graves, Answers by American Professors of Public Finance (1936), in which it is shown that there is general agreement that death and income taxes, for instance, are superior to general sales taxes.

reduce Federal-State conflicts, by interstate reciprocity, by the development of uniform State laws and methods of administration and, in some matters, by interstate agreements and compacts. It is possible in some measure also to apply these techniques as between an individual State and Federal Government, but the differences in State and Federal constitutions limit the extent to which any of these methods may be used in this connection.

(2) Segregation of State and Federal taxes and of State and Federal activi-ties. To a considerable extent, taxes employed by the Federal Government were different prior to the present century from those utilized by the States. Had that situation continued to obtain, or were it possible to restore it, many of the tax difficulties would be eliminated, but there is good reason to think that such a policy would cause more troubles than it cured in the actual provision of governmental services to the population, which is common to Federal, State, and local jurisdiction.

(3) Federal credits.—In the field of death taxation, it has proved possible to improve tremendously on the anarchy which existed prior to 1926, and especially prior to 1924, by the device of permitting credits on Federal taxes for State taxes which had been paid. This method can be employed most effectively only if, as in the case of death taxation, the legal jurisdiction of the States is approximately coterminous with that of the Federal Government. It has been proposed for corporation and individual income taxes and in some circles also for general sales and liquor taxes.

(4) Centralization of taxation.-There are three fairly distinct methods by which tax administration may be partly centralized in the hands of the Federal Government and improvements in the two principal respects outlined above effected. In the first place, the Federal Government may provide for Stateimposed supplements to Federal taxes, so that the Bureau of Internal Revenue would administer the particular tax measure, including both the rates for Federal purposes and also those named by each individual State for State purposes. This has already been done to some extent in the case of State taxes, but always semiofficially, so far as the Federal Government has been concerned. In the second place, the Federal Government could impose various types of taxes and apportion the revenue to the States in proportion to origin or some other suitable criterion. In the third place, and closely related to the second, it is possible to impose national taxes for the General Treasury, but coincidentaly to distribute grants-in-aid of particular activities to the States or to the States and localities together. This method has already been practiced extensively in the matter of road grants, certain types of welfare grants, and vocational education aid. It is now proposed that the same method, but with fewer restrictions as respects the distribution of the funds distributed, be applied to general education.


In providing Federal aid for general educational purposes, the bill before the committee seeks to improve on earlier proposals by going a long way toward guaranteeing the integrity of State and local government. This measure provides for less interference with the States and with the State business than has been provided by other legislation submitted to Congress for similar pur-poses in the course of the last two decades.

In the first place, this measure places no restriction on the particular type of educational activities which States shall support with the proceeds of the grant. Heretofore, the provisions for grants-in-aid, whether of highways, health, welfare, or education, have been earmarked, for example, for State arterial highways, for tuberculosis eradication, for old-age benefits, or for vocational, secondary, and higher education. This measure yould place in the hands of the States the decision as to which particular variety of educational activities a State may wish to promote further.

In the second place, the measure provides explicitly that the Office of Education shall not interfere with the actual administration of the funds which may be granted to any State. The administration is exclusively in the discretion of State and local school officers, and the Federal administrative officials take no part in the determination of policies. In fact, even the auditing procedure necessary to assure that funds have been properly spent is conducted by auditors chosen by the State agencies and not by the Federal Government. On the other hand, the measure, as I believe unfortunately, lays down specific restrictions as to the budgetary provisions which States must make for

education in order to enjoy the benefits provided under the act. It would seem entirely proper that any State's disposition of its own locally raised revenues should be in its own discretion but that the Federal Government may take any proper means to safeguard the funds which the Federal Government supplies and even the funds contributed by the State for the same objective. Such a policy would permit of Federal audits of State accounts which is not even provided in this bill. It would not, however, permit the Congress to provide, as it did a year or two ago in the case of highway grants, any disposition of locally raised funds other than those used for the specific activity which is the subject matter of the grant. It is an error in my judgment to provide in the bill before the committee that the States must use for educational purposes, in addition to the funds contributed by the Federal Government, a specified amount of money supplied by local tax revenue.

This comment, of course, has no concern with the merits of so-called matching requirements.

Despite the break with true federalism (which I deplore but which is not setting a new precedent in American practice), the bill before the committee represents in general a desirable experiment in the field of Federal finance and one which, in my judgment, should be made either in the form in which the bill now stands or in some similar form. In such Federal States as Australia and the Dominion of Canada, as well as in the United States, the grant-in-aid has proved one of the most useful means of off-setting the inequality automatically produced by the integration of economic life, unless governmental action intervenes.


Dr. DuBois. I am chairman of the commission of education, Georgia Association of Negro Colleges and High Schools.

Mr. Chairman and members of the committee, with two other persons I am representing the colored people of Georgia. The other two persons are Mr. B. T. Harvey, president of the Georgia Association of Negro Colleges and Secondary Schools, and Mrs. M. Agnes Jones, president of the State Teachers Educational Association, and also city supervisor of Negro schools in Atlanta.

The task which I have undertaken is that of showing just what the problem of ignorance is in the State of Georgia, especially as it touches 38 percent of the population, who are of Negro descent.

It is not as easy as one could wish to obtain exact figures as to the Negro public schools of Georgia. Many figures concerning the cost of the two systems of schools are not compiled. However, from such official reports as can be obtained, the following figures would seem to give a fair picture of present and past conditions.

According to the last report of the Georgia State superintendent of schools there were in Georgia, 1934-35, 536,802 white children and 332,924 Negro children. Of the white children, 485,135 were enrolled in school and of the Negro children 263,402. The average daily attendance for whites was 381,804 or 71 percent of the census and 198,887 for Negro children or 59 percent. Of the total attendance the Negro formed 34 percent. The total school fund for instruction for 1934-36 amounting to $13,273,168 was so divided between the schools that the Negroes received $1,821,846, or 13 percent. If all of the other items of school expense were included it goes without saying that the proportion which the Negroes received would be even smaller.

If this were a situation which had improved in the last generation it would still be bad, but discrimination is growing rather than de

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