MONTHLY TAX FEATURES

Volume 24, Number 1, January 1980

Founde d am 1937 Tax Foundation.lnc. 1875 Connecticut Ave., N.W. q Washington, D .C . 20009 q 202-328-4500 q

Federal Debt Soars Cities-Suburbs Taxed Most 116% in Decade City dwellers and suburbanite s of all taxes paid to the Federal gov- bear a heavier per capita tax burden ernment. In descending order, thes e The Federal debt is growing lik e than their country cousins, say Ta x areas are: New York, New York-New Topsy and no end is in sight, accord - Foundation economists . Analyzin g Jersey; -Long Beach, Cal- ing to recent analysis by Tax Foun- fiscal data for 1977, latest figure s ifornia; Chicago, Illinois; Philadel- dation economists. Moreover, the y available, they find that residents o f phia, Pennsylvania-New Jersey ; De- say that since World War II th e the 266 Standard Metropolitan Sta- troit, Michigan; Boston, Massachu- growth of U.S . indebtedness has ac- tistical Areas (SMSAs) studie d setts-New Hampshire ; San Fran- celerated with each passing decade . picked up 79 percent of that year 's cisco-Oakland, California ; Washing- During the decade of the thirtie s total $345 .4 billion Federal tax bill . ton, D.C .-Maryland-Virginia ; Nas- and the era of the Great Depressio n The ten most populous SMSAs ac - sau-Suffolk, New York ; and Dallas- Federal debt almost tripled, rising counted for 27 percent ($94.8 billion) Forth Worth, Texas . from $16.8 billion in 1931 to almos t In 1977, when the per capita Fed- $49 billion in 1941 . Deficit financing Billion s eral tax burden for the nation as a of substantial World War II costs fur- of $ 1,000 whole averaged $1,599, residents in ther quintupled the debt during th e the SMSAs paid an average of $1,72 forties, pushing it up to $255 8 .2 bil- $886 B - per capita. Those domiciled outside lion by 1951 . metropolitan areas had a tax bill o f Despite long years of prosperit y 750 $1,244 per capita, 39 percent lowe r since the end of the Second Worl d than the load carried by residents of War, the general course of the deb t more populous areas . Per capita Fed- has continued upward . In fact, de- eral taxes nationwide in 1979 wer e cade by decade, since 1951, the gross 500 $410 B estimated at $2,053, about 28 percent Federal debt outstanding—th e $293 B higher than in 1977, according to Ta x money actually owed by the U.S. gov- $255 B Foundation economists . ernment—has followed a sharply as - 250 On a per capita basis, the ten mos t cending trajectory . By the start of th e heavily taxed areas and their respec- sixties, that indebtedness had regis- tive tax burdens were as follows : tered a 14 percent increase over te n years, for a total of $290.9 billion. The 0 • Anchorage, Alaska—$2,68 9 1951 1961 1971 1980 sixties witnessed a 31 percent jum p Gross Federal Debt Outstandin g • Bridgeport, Conn.—$2,472 in the Federal debt, and by 1970, th e End of Fiscal Yea r • San Francisco-Oakland, Calif.— U.S. owed $382 .6 billion . Congress in , estab- $2,256 Most dramatic, however, was th e lished a ceiling for the debt of $886. 4 • Washington, D.C.-Md.-Va.— huge leap in the gross debt from 197 1 billion on September 30, 1980 . $2,24 5 to 1980, when it is expected to reg- Tax Foundation economists not e • Newark, N .J.—$2,14 6 ister an increase of 116 percent or that the $476 .7 billion increase for • Reno, Nev.—$2,13 4 more, according to analysis of pre- the last decade is larger than the na- • Nassau-Suffolk, N .Y.—$2,110 liminary data. The Second Concur- tion's total indebtedness at the end of • Midland, Tex.—$2,08 7 rent Budget Resolution, approved by fiscal year 1970. (Continued on page 3)

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1 "The Front Burner" ble for "distressed" assistance areas Value-Added Tax containing 67 .5 percent of the na- - By Robert C . Brown tion's population . H .R. 2063 em Could Aid Output, - Executive Vice President braces areas with between 90-95 per n Tax Foundation, Inc. cent of the population . Is our natio Tax Expert Says really in such bad shape? • Vague goals—The EDA grant "Urbank—A Rose By Any and loan program' s philosophy an d Strong support for a consumption- policies reflect its hasty conceptio n Other Name" type value-added tax (VAT) wa s last summer . Critics charge that wea k voiced by Leonard E . Kust at the Tax businesses which cannot surviv e d Foundation 's 31st National Confer- Keeping businesses in distresse without continuing subsidies wil l areas or attracting them there ha s ence in on Novembe r qualify for assistance, in direct con- y much to recommend it . So much, in tradiction of the goal of making dis- 28th. Kust, a tax attorney and widel a the eyes of Carter Administration do- tressed areas economically viable . known authority on taxation, is f mestic policy strategists, that, in Others charge that broad criteria partner in the New York law firm o 1977, they resurrected the Great So- a Cadwalader, Wickersham & Taft, an d qualify firms that will create only former vice-president and general ta x ciety concept of a National Develop- few jobs ; and, conversely, that firm s counsel of Westinghouse Electric ment Bank (Urbank) to achieve thi s with ready access to private credi t Corporation. goal . markets will be able to avail them - After briefly reviewing the history , Urbank was designed to furnis h selves of EDA's lower rates and easier theory, and structure of VAT, he an- grants, low-interest loans, and loan payment terms . alyzed the "consumption " variant guarantees, super-market style, t o • Politicization—At the onset of a n VAT, in the context of H .R. 5665, the keep or create jobs in poverty areas . election campaign in which charge s t Plagued by poor conception, haphaz - of using Federal grants to line up value-added tax bill introduced las - ard planning, and jurisdictional in - votes have already surfaced, on e fall by Congressman Al Ullman (D .), Chairman of the House Way s fighting, Urbank never got off th e questions the wisdom of giving Ad- Ore . A consump- ground. ministration appointees, and th e and Means Committee tion-type VAT, Kust pointed out, is Now, Urbank's basic structures powerful committee chairmen wh o the only value-added tax "that is neu - have appeared within pending leg- "oversee" them, between $7 .6 and tral in its impact on economi c islation for the Commerce Depart- $8 .6 billion to play with. - choices, i.e ., the choice between sav - ment's Economic Development Ad The cities—and depressed rura l w ing and investment or consumptio n ministration (EDA) . Urbank is no areas—need help to revive . But will the development financing part of the and the choice between use of labo r the job be done by a program that s EDA reauthorization bill (S . or of capital in production . " Senate' targets large doses of the public' s 914) and of a parallel, though far fro m Another argument in favor of VAT , money under mushy criteria subjec t e Kust said, is that there is "little room identical, measure cleared by th to political logrolling and in ways House Public Works and Transpor- for avoiding or evading the tax, and that work against each other ? little inclination to do so ." On the tation Committee (H .R. 2063). The Economic Development Bil l The EDA operates special eco- negative side, the tax attorney may be a rose with more thorns tha n nomic development adjustment as- pointed out, "Enactment of the Ull- the taxpayers can afford to grasp. sistance programs through grants , man bill would represent the first ad - loans, loan guarantees, and technica l dition of VAT to an existing tax sys - assistance. It administers public About Tax Features tem ." He conceded that such a move works programs, emergency drought did have "potential for increasing th e

relief grants and loans to communi- Tax Foundation, Inc ., is a publicl y overall burden of taxes . " ties with populations over 10,000 , supported, non-profit organization en- Kust then cautioned against over - and assistance to communities af- gaged in non-partisan research an d stating this concern, since the Ull- public education on the fiscal and man- fected by loss or threatened loss o f agement aspects of government . Mem- man bill is designed to replace reve- employment . bers of Tax Foundation are urged to pas s nues which would be lost by cuts in Use of the private sector to creat e their copies of Tax Features along t o corporate and individual incom e editors of their house publications . jobs and form the hub of attempts t o Original material in Monthly Ta x taxes and in payroll taxes . "So we are revivify cities deserves applause. The Features is not copyrighted and may be not confronted, at least at the outset , EDA program, hastily concocted b y reproduced freely by the news media with an overall increase in Federal and others . Please credit Tax Founda- the White House and rushed throug h tion . taxes," he told his audience . He also Congress, however, raises seriou s For additional information write to said that, since a VAT imposed by th e questions. Tax Foundation, 1875 Connecticut Av- "invoice" method "would be a tax enue, N .W ., Washington, D.C . 20009, o r fully disclosed," he believed that tax - • Eligibility—S . 914 lines up with call (202) 328-4500 . the Administration and makes eligi- (Continued on page 4 )

2 reflect this geographic origin . Re- SMSAs ceipts taken into account in the stud y Conable Says (Continued from page 1 ) include taxes on individual and cor- porate income, estates and gifts, so- Changes Needed • Sarasota, Fla.-$2,064 cial security, and excise, customs an d • Seattle-Everett, Wash .-$2,043 miscellaneous levies . The accompanying table provides In Tax Policy To allocate the Federal tax burden , data on total and per capita Federal Foundation economists employ spe- tax burdens in the 50 largest metro- Change formed the dominan t cial techniques to ascertain the taxes politan areas for fiscal year 1977. actually borne by residents of eac h Copies of the complete study, theme of a major address delivere d SMSA, regardless of where thos e which includes 266 SMSAs, ar e by Rep . Barber B . Conable, Jr., in New taxes are collected . Official govern- available free from the Tax Founda- York City on November 28th at th e ment agency data are not designed to tion. Tax Foundation 's 42nd Annual Din- ner. Conable, who received the Foun- dation's Distinguished Public Ser- Total and Per Capita Federal Tax Burden s vice Award for 1979 at the dinner, i s in the 50 Largest Metropolitan Areasa U .S. Representative of New York' s Fiscal Year 1977 35th District and Ranking Minorit y Federal tax burden Member on the House Ways and Total Per capita Means Committee. SMSA and State(s) (millions) Amount Rank ' During his talk, the Congressma n Albany-Schenectady-Troy, New York $ 1,255 $1,578 11 3 explored a broad range of subjects , Anaheim-Santa Ana-Garden Grove, California 3,259 1,821 35 Atlanta, Georgia 3,052 1,673 71 relating each to the idea of change- Baltimore, Maryland 3,570 1,664 76 changes that have occurred since h e Birmingham, Alabama 1,231 1,531 13 3 Boston, -New Hampshire 6,765 1,735 56 began his first term in the House in Bridgeport, Connecticut 1,991 2,472 2 1965 and changes which he feels Buffalo, New York 2,081 1,581 11 1 Chicago, Illinois 14,296 2,038 1 1 must be made in tax policy and leg- Cincinnati, Ohio-Kentucky-Indiana 2,284 1,660 78 islation. , Ohio 3,792 1,943 1 5 Columbus, Ohio 1,638 1,512 142 The first major change Conable dis- Dallas-Forth Worth, Texas 4,735 1,778 46 cussed was in the composition of th e Dayton, Ohio 1,364 1,636 89 Denver-Boulder, Colorado 2,634 1,807 40 supposedly "stable" Ways and Detroit, Michigan 8,363 1,912 1 7 Means Committee itself . Conable Fort Lauderdale-Hollywood, Florida 1,574 1,829 33 Hartford-New Britain-Bristol, Connecticut 1,940 1,842 29 noted that of the Republicans servin g Houston, Texas 4,740 1,904 1 9 on the Committee in 1969, he is th e Indianapolis, Indiana 1,942 1,700 65 Kansas City, Missouri-Kansas 2,348 1,817 38 only one still remaining . Only five o f Los Angeles-Long Beach, California 13,703 1,951 14 the 24 Democrats on Ways and Means Louisville, Kentucky-Indiana 1,435 1,623 92 Memphis, Tennessee-Arkansas-Mississippi 1,276 1,444 161 ten years ago continue as part of th e , Florida 2,619 1,818 37 present expanded 36-member Com- Milwaukee, Wisconsin 2,616 1,835 32 Minneapolis-St . Paul, Minnesota-Wisconsin 3,799 1,865 23 mittee . "It's small wonder," he said , Nassau-Suffolk, New York 5,668 2,110 7 "that we repeat many of our mistakes , New Orleans, Louisiana 1,738 1,538 129 New York, New York-New Jersey 18,969 2,015 1 2 with such a modest continuity ." Newark, New Jersey 4,234 2,146 5 Change in leadership style o n Norfolk-Virginia Beach-Portsmouth, Va .-N .C 1,060 1,330 21 8 Philadelphia, Pennsylvania-New Jersey 8,364 1,744 53 Ways and Means, Conable pointed Phoenix, Arizona 1,954 1,568 11 5 out, has been a response to the "com- Pittsburgh, Pennsylvania 3,976 1,730 57 Portland, Oregon-Washington 2,026 1,812 39 pletely different environments " ex- Providence-Warwick-Pawtucket, Rhode Island 1,390 1,630 90 isting a decade ago and today . And Riverside-San Bernardino-Ontario, California 1,819 1,408 183 Rochester, New York 1,783 1,836 31 this leadership climate has change d Sacramento, California 1,475 1,597 101 not only on the Committee "but in St. Louis, Missouri-Illinois 4,105 1,724 59 Salt Lake City-Ogden, Utah 1,161 1,421 175 the Congress as a whole, where s o San Antonio, Texas 1,353 1,327 22 2 much of the action has been spread , San Diego, California 2,634 1,581 11 1 San Francisco-Oakland, California 7,171 2,256 3 where there's been so much stream- San Jose, California 2,375 1,960 1 3 lining and so much democratizatio n Seattle-Everett, Washington 2,911 2,043 1 0 Tampa-St . Petersburg, Florida 1,983 1,440 165 so that everybody has equal say in th e Toledo, Ohio-Michigan 1,278 1,646 82 process. " Washington, D .C .-Maryland-Virginia 6,812 2,245 4 The structure of Ways and Mean s "Based on population as of July 1, 1977 . has also been altered, according to 'Rank among the 266 metropolitan areas included in the full study . Source : "Memorandum on the Allocation of the Federal Tax Burden by Standard Metropolitan Statistica l the New York Congressman, throug h Area, " Tax Foundation, November 1979 . (Continued on page 4 )

3 • " We've got to . . . tie tax philos- Value-Added Tax Rep. Conable ophy into the specific steps we ar e (Continued from page 3) taking rather than doing them in or- (Continued from page 2) der to still the hostile voices of th e the establishment of subcommittees , moment. " payers "would be likely to make a a change he describes as making " a common cause of opposing a • "Another thing that I think is n big difference. " increase, " needed . . . is some real oversight . "We can no longer bank on Reviewing the economic argu- . . . Somehow we have got to get an things," he said . "We have foca l ments for a VAT, Kust described th e orderly way for seeing if the thing s points of pressure relating to the var - drop in savings and investment in th e we are doing with respect to tax laws , ious special provinces of the Com- in recent years . Sav- with respect to other types of law, are mittee, and that makes a tremendou s really achieving what we intended . ings, he pointed out, declined fro m difference in the way you operate . " 7 .4 . . . If we have adequate oversight , percent of disposable personal in- Conable pointed out that the open - come in 1970 to 4 (sunsetting of tax preferences ) .9 percent in 1978. ing of committee hearings, which he "Our rate of business investment i n shouldn't be necessary, and we ought personally supported, has also new plant and equipment in to stay away from mindless devices 1978 changed the manner in which ta x was 7 .3 percent of GNP (Gross Na- that will make an effort to eliminate policy is debated . So has the weak- tional Product)," he said, "as com- the exercise of judgment in govern- ening of the seniority system . "They pared with 8 .3 percent in 1970 ." He ment." put freshmen on (Ways and Means) ," charged, "we have the lowest rates o f he remarked, conceding that there i s • "It would be advantageous for u s savings and investment of any indus - "nothing wrong with freshmen . . . seriously to consider "a greater ele- trialized country ." He also linked the The point is it no longer reflects the ment of indexing in our tax law s o decline of savings and investment to power structure to the degree wher e that we will be taxing real income the nation's "sagging rate of increas e you can be sure the people makin g rather than nominal income . " in productivity. " the decisions are going to have the • "We have the need to organiz e Ending his presentation on a note influence out on the floor . " the inputs into our system . . . If we're of caution, Kust admitted, "There is "We have a less representativ e getting special interest inputs, we'r e a justifiable concern that adding a Committee also," Conable said, " . . . likely to have special interest legis- new tax such as VAT to our Federal in the sense that they no longer com - lation. " tax system . . . will ultimately resul t mand the over-riding respect of our • "We need to maintain the status in a heavier burden of taxes ." He ar- colleagues ." Acknowledging tha t of the Joint Committee [on Taxation] , gued that this could be averted and "we are an input/output type of insti- too . . . The Joint Committee should concluded, "even a higher level o f tution," he pointed out that the ten- not be an apologist for any particula r taxes, if they are neutral and do no t dency toward fragmentation in Con- point of view. It shouldn't be a n discriminate against savings and th e gress and in the Committee has been agency for extricating those in polit - use of capital, would be better for our heightened by the fragmentation o f ical trouble." economic health than the present American society . level of the discriminatory income Following his discussion of • "We really have got to look at th e taxes." changes in the Congress and its Way s need for international cooperatio n The complete text of Mr . Kust's re- and coordination . . . I think we must and Means Committee, Conable se t marks appears in the January 1980 forth a number of changes which h e concern ourselves also with com- issue of Tax Foundation 's Tax Re- considered necessary for more effec- petitiveness in the world market . " view, single copies of which are tive formulation of tax policy and tax • "We've got to look at the inter - available at no charge from the Foun- legislation . Among them were : national scene, prepare ourselves fo r dation. a more aggressive role in the worl d • "We need a tax philosophy . . . market, or we're likely gradually t o some overall goal for our tax system." deteriorate into one of those quaint Now Available museum countries that revels in a "Value-Added Taxation," Re - • "We've got to decide . . . how we glorious past. " search Bibliography #69, Oc- are going to relate taxes to the eco- tober 1979, 12 pp. Single copies The New York State Congressma n nomic system . . . Somehow we've free. concluded his talk by urging the got to relate the tax system to whethe r we want the economy to function business leaders in his audience t o - continue voicing their concerns t o ter or whether we want to change th e their elected representatives . We draw on it for our best ideas . We way in which the economy functions "The greatest reservoir of talent draw on it also, ultimately, for the through redistributive efforts . " and ability in America," he said, "i s implementation of a tax system • "We've got to relate taxes to othe r in the private sector . We draw on that which requires voluntary compli- taxes. " for our best personnel in government . ance."

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