Tax Assignment and Revenue Sharing in the United States
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Description
In President Reagan's budget proposal for fiscal year 1983, a call was made for a major change in the U.S. federal system. The proposed change included a switch in responsibilities for certain expenditure programs between state governments and federal governments. The exchange would give the federal government full responsibility for medical care for the poor (Medicaid), and the states would take over welfare (aid to families with dependent children) and food stamps. In addition, the proposal would modify substantially the pattern of federal aid to state governments, with the federal government giving responsibility for a large number of grant programs to the states ( over 40 , including transportation and other categorical programs) , most of which would be paid for initially by a special trust fund financed through federal revenues . After several years the trust fund would be eliminated and states would assume responsibility for financing many of these programs on their own. Behind these Reagan proposals is not only a desire for a shift from federal to state financing of expenditures, but a desire to lower public spending generally. The Reagan proposals make this a timely opportunity for one to reflect broadly about government finance in the United States. This paper is primarily descriptive, involving some detail about U.S. federal, state and local tax systems. Of course, any descriptive paper would not be complete without some suggestions concerning public policy. The normative theory which serves as the basis for such suggestions comes from the usual public finance framework discussed previously in this volume. The emphasis in this paper is on economic efficiency, as it relates to the choice of tax instruments and the level of government which can best utilize that instrument. Within an economy such as that of the United States, with multiple jurisdictions and multiple levels of government, any efficiency analysis is difficult at best, because of the externalities created when individual governments' actions affect individuals residing in neighboring jurisdictions, or when these actions indirectly affect the mobility of individuals and other factors of production. This is particularly true in the U.S. context in part because of the large and diverse number of jurisdictions and in part because of the mobility of the population. As a consequence, the theory of an efficient allocation of individuals among local jurisdictions has received substantial attention in the economics literature, and will be relied on here. The descriptive portion of the paper begins with a look at the growth of U.S. government, concentrating on the forms of revenue utilized to finance that growth. Because of the diversity of local jurisdictions, the locational resource implications associated with the choice of various tax instruments are particularly important and receive special treatment. Finally, I look with some care at the growth of federal and state grants-in-aid programs, and evaluate some of the suggested reforms.
Source Publication
Tax Assignment in Federal Countries
Source Editors/Authors
Charles E. McLure, Jr.
Publication Date
1983
Recommended Citation
Rubinfeld, Daniel L., "Tax Assignment and Revenue Sharing in the United States" (1983). Faculty Chapters. 1871.
https://gretchen.law.nyu.edu/fac-chapt/1871
