Tax Features Volume 24 Number 3 March 1980

Home , March 1980

MONTHLY TAX FEATURES

Towar d bette r Volume 24, Number 3, March 1980 government Founded 1937

1875 Connecticut Ave ., N .W. q Washington, D.C. 20009 q 202-328-4500 q

Per Capita State and Local Taxe s 42) N .r, $ 66 9 WASH (16) MONT. (32) N .O. INN . (9) i?3i S83 7 (24) $929 $817 $721 $1,001 $970 (39) S .D 289 $1,308 $70'-' will (5 ) (12) $683 13) N y . (2) r• , $1,09 3 IOWA (27) wis. j a22) MICH. (22i IDAHO(36 ) $1,15 6 ILL . $86 2 884 3 NEB . (25) $794 INO. OH IQ (36 ) NN 15) 8941 CALIF . (4) ' NEV. (8) UTA H (17 ) (34) PA (21 ) $81 4 $701 N.1 1101 $993 (31 ) . MO. W .V A COLO (19) $917 $707 i (141 $94 3 $1,004 (45 ) (40) KAS . (26) 111) $98 5 $728 $88 2 $66 2 $67 5 $757 $798 01. 131 81 .245 $653 (43) KY. (30) VA . $1,227 ARIZ . (18) N . EX . (28) OKLA . TENN . (46) N .C . (44) ARK . (48) $61 3 .C . (47) $64 3 $66 0 (51 ) MISS . ALA . GA . $907 $763 $55 3 (49 ) (50) (41 ) $61 5 (34) TEXAS $589 $566 1 $672 LA . Number i n (33) parenthesi s i indicates standin g $707 $716 of state s $1,87 1 according t o burden of stat e ALASKA and local tax . (1) Dollars equals pe r $1,05 9 capita tax in fisca l 0 year 1978 . (7) °e'O Tax Foundatio n HAWAII map .

General Tax Revenues Up 187% In 10-Year Period; State and Local Taxes Top $200BillionforFiscall978 Tax payments to state and loca l cade, at 187 percent. General tax col- The combined effects of popula- governments totaled $206.5 billion lections totaled $193 .6 billion in tion and price increases, if they were in fiscal year 1978, up 12 percent 1978, as compared to $67.6 billion a the only factors affecting taxes , from the previous year and 195 per- decade earlier . would have pushed tax payments u p cent higher than ten years earlier, ac - The 187 percent rise in state-loca l by 7.5 percent annually, said Tax cording to Tax Foundation analysis taxes occurred during a decade when Foundation researchers . Alternately, of data published by the Bureau o f the nation's population rose by 9 per- personal income growth alone would the Census. cent, consumer prices by 88 percent, have raised taxes by 9 .6 percent a The rise in general tax collection s personal incomes by 151 percent, year. Clearly, there were other force s (excluding unemployment insur- and Federal tax collections by 161 operating, since the average annual ance) was slightly less over the de- percent. (Continued on page 4 )

ATTENTION EDITORS : Monthly Tax Features is not copyrighted . Material may be reproduced freely . Please credit Tax Foundation . The Front Burner Largest Budget Hike s same two years, Federal transfer pay- By Robert C. Brown In "People" Programs ments for individuals will increas e Executive Vice Presiden t an estimated $73 .6 billion (from Tax Foundation, Inc. Much of the debate and contro- $224.9 billion to $298.5 billion) . In versy surrounding the fiscal 1981 1981, such transfer payments will ac - "Budget Revisions— budget has focused on the projecte d count for nearly half (48 percent) o f rise in national defense outlays . total spending by the Federal govern - Don't Lower the Bridge , However, this is not the area whic h Raise the Water " ment. reflects the sharpest increase in Fed - Tax Foundation economists als o eral spending, Tax Foundation econ - point out that these payments for in- Budgeting for the U .S . governmen t omists point out . dividuals are the largest of the out - is no simple task. Many assumption s The largest increases, by far, the y lays classified in the budget as rela- must be made in doing so, and for th e say, have been for those programs tively uncontrollable, representing most part, a case may be argued that providing transfer payments to or o n about three-fifths of the uncontrolla - one set of assumptions is as valid a s behalf of individuals not currently bles. These are also the program s the next. Only hindsight will validat e employed by the government . Ac- which reflect most clearly the impact anyone's projections . cording to the budget as proposed in of inflation on the budget, since auto- The Administration's revision o f January 1980, defense outlays will matic increases, tied to changes in the budget for fiscal 1981, however , rise by an estimated $28 .5 billion be- the consumer price index, are pro- represents a quantum leap in projec- tween 1979 and 1981 (from $117 . 7 vided annually for most of these pro - tion by political expediency . The billion to $146 .2 billion) . Over the grams. White House claims to have lowere d Looked at another way, national the bridge. It has actually raised th e defense outlays in 1975 totaled $85 .6 water—at least for the most part . doesn't seem to be happening right billion, about 26 percent of all Fed- now in Washington, D .C. The White House Fact Sheet on th e eral spending. The estimated $146 .2 As a step in that direction, I hav e new anti-inflation program release d billion budget for defense in 198 1 a very modest suggestion : If we take March 14 proposes $2 billion in will account for a smaller percentage the 1981 budgetary figures presente d largely unidentified spending "cuts " of total budget outlays—23 .7 percent. by the Administration on January 28 in fiscal 1980 and $13 to $14 billio n Over the same period, Federal out - in cuts in fiscal 1981 . However, the and cut 5 percent across the board , lays for human resource—or "peo- we would not only eliminate the $1 reductions do not relate to the budge t 6 ple"—programs, including transfer billion deficit projected for 1981 in as proposed in January . They are not payments to individuals discusse d the January budget document, but w e based on the estimates used in pre- above, will almost double in amount , would have a $15 billion dollar sur- paring that document. To reach his from $168 .7 billion to $336.2 billion . plus with which to finance produc- declared reduction totals, Presiden t In percentage terms, "people pro - tion-oriented tax cuts . Carter's staff used a new set of higher grams," which accounted for about Citizens--private and corporate— estimates . 52 percent of total spending in 1975 , have had to tighten their belts at leas t If the January assumptions are ap- will rise to an estimated 54 .6 percent that much in the last few years. Is it plied to the March estimates—whic h in 1981. unreasonable to ask our elected lead - budgetary consistency would see m Another substantial portion of Fed - to have demanded—the latest "cuts " ers to do the same ? eral outlays goes to finance the na- would in fact raise 1980 outlays b y tion's debt. Net interest is the interest $4 to $5 billion and would reduc e About Tax Features on the public debt (estimated at $79 .4 1981 outlays by only between $3 an d billion in 1981), and on tax refunds , $5 billion. The White House has sim - Tax Foundation, Inc ., is a publicl y less interest collected by the govern - ply inflated the outlay estimates and supported, non-profit organization en - ment and intragovernmental pay- "cut" most of the fat from those in- gaged in non-partisan research an d public education on the fiscal and man- ments of interest on the investments flated projections . agement aspects of government. Mem- of the social insurance and other trus t There is no point in belaboring the bers of Tax Foundation are urged to pas s funds in Federal debt securities. Net obvious fact that our nation is at a their copies of Tax Features along t o editors of their house publications . interest outlays rose from $23 .2 bil- major fiscal crossroads. There is little Original material in Monthly Tax lion in 1975 to $42 .6 billion in 197 9 need to attribute malice to the Ad - Features is not copyrighted and may b e and are projected to increase to $54 .2 ministration or the Congress in th reproduced freely by the news medi a e and others . Please credit Tax Founda- billion in 1981 . budgetary politicking now rampan t tion . The table on the following page in the nation's capital . What is For additional information write t o gives the broad functional grouping needed, though, is to use real num- Tax Foundation, 1875 Connecticut Av- enue, N.W., Washington, D .C. 20009, o r of budget outlays for selected year s bers in a consistent way when dis- call (202) 328-4500 . in both dollar amounts and as a per- cussing the budget, something which cent of total outlays .

Federal Pay in 198 1 Growth Trends in Personnel Benefit Costs, 1975-1981 a Federal Civilian and Military Personnel ° Will Claim One-Fifth (Dollar amounts in billions ) Benefits as a of All Budget Outlays Total percent of compensatio n Direct Personnel tota l One-fifth of all budget outlays - Year and benefits compensation benefits compensatio n slightly more than $125 billion-will 1975 $ 76 . 3 $59 .7 $16 .6 21 .8 % 1979 105 . 2 77 .2 28 .0`" 26 . 6 go into the pockets of Federal em- 1980 116 . 2 84 .0 32 .2` 27 . 7 ployees in fiscal year 1981, according 1981 125 .1 89 .4 35 .7° 28. 5 to Tax Foundation economists . "Data for 1980 and 1981 are estimated from the 1981 budget document . "Includes Federal civilian employees in the executive branch, Postal Service employees, and the uniforme d Those who work for the U.S . govern- services . ment will receive this amount eithe r 'Includes transfers for interest on unfunded liability to Civil Service retirement and disability fund . as direct compensation or as employee benefits, including allow- The $125 billion payroll estimated estimated that his Departmen t ances of about $3 billion for civilia n for 1981 is 8 percent higher than the funded jobs for some 980,000 persons employee and military personnel pa y $116 billion estimated for the current in addition to those on the agency raises due next October . fiscal year and 19 percent higher tha n payroll. Similarly, in May 1979, the The payroll estimates in the Ad - the actual payroll cost of $105 billio n National Journal estimated that there ministration's budget assume that incurred in 1979 . Civilian personnel were perhaps as many as eight mil - the President's comprehensive re - costs in the executive branch are es - lion persons being paid by the gov- form of the Federal pay-setting sys- timated at $59 .5 billion during th e ernment under such arrangements . tems and procedures, submitted to current year, while military person- Whatever the true total, it is safe to Congress in June 1979, will b e nel will have a compensation/bene- say that a substantial number o f passed . If these reforms are not fits package of nearly $41 billion, in - Americans make their living in th e adopted, personnel costs will be $ 3 cluding pensions for military retir- Federal government . For every 44 billion higher. ees . Americans, 1 works in the executiv e This relentless upward march of The above budget figures do not branch, Postal Service or is in the Federal compensation costs, mostl y tell the whole story of Federal em- armed forces . When the tally is lim- for civilian and military employee s ployment and personnel costs, ac - ited to employed persons, that ratio in the executive branch, has occurred cording to Tax Foundation budget jumps to 1 out of every 20 workers despite a relatively stable level of em - experts. An unknown, but certainly taking home a Federal paycheck. ployees in recent years : 4,885,66 1 large, number of additional person s The above table gives growt h in 1979 ; 4,899,000 in 1980 ; and are employed outside the govern- trends in Federal personnel costs fo r 4,866,900 in 1981 . This total encom- ment but paid with Federal funds un- selected recent years . More complet e passes U.S. Postal Service employ- der a variety of grants and contractual details are given in Book III of th e ees, which the budget document in- arrangements. For instance, in 1978 , Tax Foundation's series of special re- cludes in some totals but not in oth- the then Secretary of Health, Educa - ports on the proposed Federal budge t ers . tion, and Welfare, Joseph Califano, for fiscal year 1981 .

Budget Outlays by Functional Grouping , Now Available Selected Years 1975-1981 (Dollar amounts in billions ) "Proposed Federal Budget fo r As percent of Fiscal Year 1981"-a three-part Actual _ Estimated total outlays Functional group 1975 1979 1980 1981 1975 1979 198 1 series of Tax Foundation special reports-is currently avail - National defense" $ 85 .6 $117.7 $130 .4 $146 .2 26 .2 23 .8 23 . 7 Human resources"" 168.7 259 .4 298 .9 336 .2 51 .7 52 .5 54 . 6 able, single copies free o f Net interest" 23 .2 42 .6 51 .8 54 .2 7 .1 8 .6 8 . 8 charge: 74 .0 82 .5 79 .1 14 .9 15 .0 12 . 8 All other" 48 .7 Summary Analysis and A n Total, budget outlays . . . . $326 .2 $493 .7 $563 .6 $615 .8 100 .0 100 .0 100 .0 I. Alternative Concept ; "Includes : military programs of the Department of Defense, atomic energy military activities, and certai n other defense-related programs . The 1981 estimate includes an allowance of $1 .8 billion for anticipated II. Payments to Individuals October pay raises for military and civilian personnel in the Department of Defense . "Includes : income security ; health ; education, training, employment, and social services ; and veterans ' and to State-Local Govern- benefits and services . 'Net interest reflects interest on the public debt (estimated at $79 .4 billion in 1981) and interest on tax refunds , ments ; partially offset by interest paid to the government, and less interest paid from general revenues to the socia l III. Federal Employment and security and other trust funds on debt securities held by those funds . "Includes : international affairs ; general science, space, and technology ; energy ; natural resources an d Personnel Costs . environment ; agriculture ; commerce and housing credit ; transportation ; community and regional devel- opment ; administration of justice ; general government ; general purpose fiscal assistance ; and allowance s (pay increases and contingencies) .

than personal income over the de- a whole. State-Local Taxes cade, while the District of Columbia's By type of tax, the Foundation sai d (Continued from page 1) tax increase was 49 percent above in- income taxes have been the fastes t rate of increase in general taxes was come growth . rising levies . Both individual an d 11.1 percent—far in excess of the Other states with increases of 2 5 corporate income tax grew by wel l amount induced by growth in popu- percent or more were : Massachusetts, over 300 percent in the decade fro m lation, prices, and income. Illinois, Pennsylvania, New York , 1968 to 1978. Sales and gross receipts On a nationwide basis, per capit a New Jersey, Connecticut, Maine, an d rose by 195 percent and propert y (general) state-local taxes rose by just Delaware. In only three states — taxes by 139 percent at the same time . over 9 percent from 1977 to 1978, to Idaho, North Dakota, and South Da- The map on page 1 and the table a level of $888, up 163 percent or kota—did growth in taxes fall belo w below provide state-by-state details $550 from the amount paid in 1968. the rise in income for the decade a s on general state-local tax collections . While growth in per capita tax collections has been fairly consisten t over the last decade, Tax Foundatio n State-Local Taxes by States economists note that taxes in relatio n Per Capita and Per $1,000 of Personal Income to personal income appear generally Fiscal Years 1968 and 1978 to have been in a declining trend dur - ing the past five years. From 1968 to Taxes per $1,000 Per capita taxes of personal incom e 1973 state-local taxes rose from $108 _ Amount Percen t Rank Amount Percent Ran k to $129 per $1,000 of personal in- State 1968 1978 increas e 1978 1968 1978 increase 1978 come . While there have been some U .S . AVERAGE $338 $ 888 163 $108 $128 19 — increases and some declines in thi s Alabama 205 566 176 50 95 102 7 48 ratio in the years since then, Alaska 335 1,871 458 1 91 175 92 1 1978 tax Arizona 332 907 173 18 125 143 14 7 collections per $1,000 of personal in- Arkansas 200 553 176 51 97 102 5 48 come totaled about California 488 1,227 151 4 134 158 18 4 $128, down Colorado 352 882 151 19 117 126 8 21 slightly from their level in 1973 . Connecticut 357 941 164 15 91 116 27 32 Delaware 348 943 171 14 98 123 26 2 5 Among the states variations were Florida 289 699 142 38 104 106 2 44 wide in both the levels of state-loca l Georgia 245 672 174 41 98 113 15 3 6 taxes and their respective trends over Hawaii 421 1,059 152 7 136 140 3 1 0 Idaho 315 701 12 3 36 124 120 -3 2 8 the decade. In every state, however, Illinois 330 917 178 17 89 118 33 2 9 Indiana 305 707 13 2 34 97 103 6 4 7 per capita taxes more than doubled , Iowa 356 794 123 27 114 116 2 3 2 with increases ranging from a low of Kansas 322 798 148 26 107 113 6 3 6 Kentucky 227 662 19 2 43 95 113 19 3 6 109 percent in South Dakota to a high Louisiana 280 716 15 6 33 116 123 6 2 5 of 458 percent in Alaska. In the Dis- Maine 276 758 175 29 105 133 27 1 3 Maryland 358 985 17 5 11 107 130 21 1 6 trict of Columbia, per capita taxe s Massachusetts 396 1,098 17 7 6 112 151 35 3 jumped 231 percent from 1968 to Michigan 367 959 16 1 13 110 127 15 1 9 1978. Minnesota 392 1,001 15 5 9 128 142 11 8 South Carolina also showed a Mississippi 204 589 189 49 108 118 9 2 9 large per capita tax increase of 206 Missouri 272 653 140 45 91 99 9 5 0 Montana 340 817 14 0 24 121 138 14 1 1 percent in the ten-year period . Nebraska 324 814 15 1 25 105 121 15 2 7 Alaska led the list of states in per Nevada 429 1,004 134 8 122 131 7 1 5 New Hampshire 271 669 14 7 42 91 105 15 45 capita taxes collected in 1978 at New Jersey 349 993 18 5 10 96 124 29 23 $1,871, followed by New Yor k New Mexico 282 763 17 1 28 115 133 16 1 3 New York 503 1,308 160 2 132 172 30 2 ($1,308), District of Columbi a North Carolina 237 643 171 46 99 109 10 41 ($1,245), California ($1,227), and North Dakota 316 721 128 32 124 116 -6 32 Ohio 277 701 153 36 87 99 14 5 0 Wyoming ($1,156) . Lowest were Ar- Oklahoma 266 660 148 44 102 107 5 42 kansas ($553), Alabama ($566), Mis- Oregon 319 872 173 20 105 128 22 1 7 Pennsylvania 298 862 189 21 94 123 31 2 5 sissippi ($589), Tennessee ($613) , Rhode Island 331 848 15 6 22 101 125 24 2 2 and South Carolina ($615) . South Carolina 201 615 206 47 94 111 18 3 9 South Dakota 327 683 109 39 123 115 -7 3 4 Measuring taxes against personal Tennessee 227 613 170 48 97 107 10 42 income for individual states, Tax Texas 243 707 19 1 34 89 105 18 45 Utah 301 728 142 31 117 127 9 1 9 Foundation economists found that , Vermont 350 837 13 9 23 125 145 16 6 on average, state-local taxes over the Virginia 269 757 181 30 97 110 13 4 0 Washington 381 929 144 16 115 127 10 1 9 decade rose by 19 percent more tha n West Virginia 249 675 171 40 107 113 6 3 6 personal income, but that the in - Wisconsin 386 970 15 1 12 123 142 15 8 Wyoming 405 1,156 185 5 135 159 18 3 crease was generally attributable to District of Columbia 376 1,245 231 3 91 136 49 12 the five years ending in 1973. Many " Excludes unemployment compensation taxes . states exceeded the national trend . In Source : Bureau of the Census, U .S . Department of Commerce, and Tax Foundation computations . Alaska taxes grew by 92 percent more