OUR CRAZY QUILT STATE TAXES

...Actually, most states had been run­ning deficits regularly since the end of World War II, but the surpluses built up during the war years had carried them through despite the fact that since 1947 the purchasing power of the dollar had fallen 20 per cent and population was up 21 per cent...

...Many of us have vague recollections of the depression days of the Thirties when teachers went unpaid with the collapse of property tax collections, but then everyone was worried about the situation...

...Michigan's difficulties stemmed rather from constitutional limitations which nearly prohibited action without the slow process of constitutional amendment...

...Although the rule for assessment in Indiana is one-third of fair cash value, assessed valuations on personal prop­ erty range from five per cent to 105 per cent and "more and more are they the expressions of personal feelings of both assessors and taxpayers," ac­ cording to Kenneth Lemons, who has assumed the responsibility for writ­ ing the first personal property tax assessment manual for the Indiana State Board of Tax Commissioners...

...I heard the people correctly, it is the state and local levies which are meeting the greatest resistance...

...Our Crazy Quilt State Taxes by WILLIAM L. FORTUNE T HE FIRST major attempt to over­haul our federal tax structure since its inception almost a half cen­tury ago was launched last November with the opening of public hearings by the House Ways and Means Com­mittee under the chairmanship of Representative Wilbur D. Mills, Arkansas Democrat...

...Anyway, Governor Furcolo's ef­ forts to ease the property tax burden in Massachusetts met with ignomin­ious defeat as only two Democratic state senators voted for his program...

...It was also clear why, despite his own warnings against the flagrant use of the borrowing power of the state "because they inflate the cost of capital projects 50 per cent/' Governor Nelson Rockefeller of New York this year asked the legislature for $277 millions in tax increases and the use of $147 million in borrowed funds...

...A house painter we talked to, who complained bitterly because he was paying $485 in property taxes on his four-room house, couldn't believe it when we told him that the total tax bill of a citizen of Massachusetts, when measured as a percentage of his average income, would be about the same as that of a citizen of any other state...

...On the other hand, the governor's principal legal adviser, Al­fred Fitt, pointed out that the un­ions had not been able to sell this to their membership...

...An eight-months political tug-of-war ensued, not over the necessity of the tax in­crease but to avoid the political blame for its enactment...

...Although Governor G. Mennen Williams proposed an individual and corporation net income tax, the legis­lature, long dominated by the Repub­licans, would have none of it, prefer­ring to circumvent the Constitution by raising the sales tax one per cent and calling it a "use" tax in the hope the state's highest court would sanc­tion it as such...

...It would appear from the experiences particularly of Michigan and Massa­chusetts that where entirely new kinds of taxes were proposed (the net income in the former and the sales tax in the latter) the public's anti­pathy toward taxes in general is too great to allow even for reasonable and well-founded substitutions for pres­ent systems...

...The court refused, however, and so after ten months of bitter struggle between the governor and the legislature, Michigan at the end of 1959 was in a worse financial morass than when the year began...

...And it is only the most highly developed, literate, and polit­ically responsible peoples of the world who place their main reliance on the self-assessment nature of an income tax...

...As a result, New York ranked second among all the states in per capita state and local debt, Massachusetts fifth, and Con­necticut sixth...

...The experi­ence of former governor George M. Leader, who raised the sales tax from one per cent to three per cent and then ran for the United States Sen­ate in 1958 only to be defeated while all other Democrats were winning (including Governor Lawrence), was a lesson not lost on the state's politicians...

...He talked to governors, their staffs, tax officials, economists, and the one on whom the final burden rests —the man on the street...

...By mid-year Di­Salle had gotten practically all of his tax program through the legislature...

...After all, no state has adopted the net income tax in more than 20 years, and most of our state tax systems today are depression-born measures...

...Faced with a $177 million deficit, Law­rence's only recourse was to an in­crease in the existing sales tax rate and a widening of the tax base to in­clude virtually all sales except those of food and clothing...

...But public officials must take their share of the blame for the public's dis­interest...

...The inequi­ties are built into any system of tax­ation that must rely on unscientific, haphazard guesswork of frequently poorly trained and poorly paid in­dividual assessors...

...What Furcolo had proposed was that two-thirds of the new tax would be used to reduce the most burdensome local property tax in the nation ($121.67 per capita as compared to a national average of $75.46...

...The last such attempt was made in re­ gard to real estate assessment in 1949, but today there are $100,000 homes in the Indianapolis area that are as­ sessed for less than $10,000 despite the one-third rule, and recently it was found that there were 1,400 homes in a single township that were not even on the assessment rolls...

...As governor after governor asked his state legislature for increased tax­es in the past year largely just to maintain a position of solvency, we were told by the editors of Fortune magazine that this may be only a harbinger of things to come, that the gap between the states' income and outgo by 1970 would be a whopping $8 billion, even allowing for the nor­mal increased receipts accruing from national growth at present rates of taxation...

...One of the most outstanding gov­ ernors in Connecticut's history, Abra­ ham A. Ribicoff, while honoring his 1958 campaign pledge of no new tax­ es, asked for and received from the legislature authority for the issuance of $402 million in bonds for highway construction and capital improve­ ments in state institutions...

...Although numerous studies had been made under both private and public sponsorship, governors taking office in January were forced to present their explosive tax pro­grams in a vacuum because their predecessors or they themselves as candidates for office had not debated the real issues or had lulled the pub­lic into complacency with campaign promises of "no new taxes...

...There were other lessons to be learned in Pennsylvania, particularly the public's lack of concern over the ultimate solution to the problem...

...The state's chief economist, William Sharkey, explained to me that the tax increases were "all the governor thought he could ask for at the present time...

...Why was 1959 suddenly the year for the states to run out of money...

...This is not said to justify the high property taxes of Massachusetts or of any other state...

...Often the wealthiest peo­ple have retired to the ease of apart­ment life and pay relatively little in property taxes, whereas home owner­ship and high property taxes are the only choice for the young family of modest income with school-age children...

...Final­ly, after the state's supreme court had declared the raise in the sales tax un­constitutional, Williams announced he would accept any of 26 possible solutions to Michigan's tax problem...

...To study the program at close range he packed his family and seventeen pieces of luggage into a station wagon for a 6,000-mile tour of the important state capitals...

...Few un­derstood how the load was divided among federal, state, or local taxes...

...Take him back with you to In­diana—he's gotten too big for his britches," were some of the printable words a gasoline station owner out­side Springfield, Massachusetts, used regarding Governor Foster Furcolo after he had proposed a new three per cent sales tax...

...This had effectively kept the net income tax from being applied to individuals, but corporations had been made sub­ject to it by paying a flat rate...

...And this is only the beginning of the huge task the House Committee has assumed...

...In Lansing, the Michigan capital, legislators were joking about it as we rode with them in the state house elevator...

...He proposed no new taxes but general across-the-board increases in prac­tically all the state's principal taxes— sales, cigarette, gasoline, and corpora­tion franchise—plus an increase in the prices of liquor sold at state-owned liquor stores...

...As long as a state's credit was good, it could make up for budgetary de­ficiencies with borrowing...

...The 1959 Indiana state legislature sought to correct these inequities when it called for a general state-wide reassessment in 1962, but what the legislators failed to realize was that the inequities will always outrun the best of intentions and refinements and that, today, property ownership is no longer a criterion of wealth or ability to support the functions of government...

...These states were like islands in a sea of surrounding prosperity, and their confidence was complete that somehow things would work out, even though their state constitutions prohibited borrowing funds to weath­er the crisis...

...If he lived in Mississippi, he would have very little to pay in the kind of visible, tangible property tax that makes people highly tax con­scious, but through sales and excise taxes (70 per cent of Mississippi's re­ceipts), his state would rank second in the nation in the cost of state and local government as a percentage of the average income, which in turn was the lowest in the country ($958...

...The five weeks of panel discussions that followed, testimony covering every aspect of federal taxation, delivered by tax ex­perts, economists, and finance spe­cialists representing a broad rainbow of interests and viewpoints in the na­tion, produced 2,400 pages of valu­able information and advice...

...For in­stance, the sales tax was limited to three per cent and five-sixths of it had to be returned to the local com­munities and school districts...

...They are, for example, practically the sole support of the educational sys­tem in the United States...

...In Pennsylvania, Governor David Lawrence was hamstrung by the state's constitution, which prohibits any net income tax not levied at a uniform rate on all citizens...

...There are reasons behind this resistance, but no one should mistake the importance of our state and local tax resources...

...It was no wonder that whenever we asked a private citizen what he thought of his governor and his tax program, the answer revealed a seething inner resentment...

...I was beginning to understand what President Eisenhower meant when he said any further tax increase might "run the risk of civil disr­obedience...

...We could also have pointed out that it is the most backward, underdeveloped countries in the world, typically those of South America and Asia, that rely most heavily on the hidden nature of a sales tax...

...We're the heaviest taxed state in the country and Fur­colo would have to think of still one more tax," he said...

...Thus he revealed not only his own ignorance of state tax matters but also Furcolo's failure to make his purposes clear...

...Evidently it is less painful to pay in dribbles through­out the year, even though it may total more, than in one lump sum...

...And it served no good purpose to try to explain, for in­stance, that the state of Ohio needed more for public welfare than did Indiana because Ohio bore 50 per cent of these costs whereas Indiana's share was only 20 per cent, with the federal government contributing the greatest part...

...But equally important and even more far-reaching was the feeling I had, in talking to anyone on the street about state taxes, that it was not the proposed increase that was the source of irritation but rather that it was a final straw added to an already back-breaking load...

...In the meantime, too, most states had committed themselves either to new programs or higher levels of support for existing programs and thus had permanently raised their "fixed charges...

...On the other hand, their failures in this respect might be at­tributed to the political forces unique to these states...

...State taxes may be less burden­some than the federal impost, taking roughly 10 per cent of the national income as compared to 22 per cent for the national government, but if WILLIAM L. FORTUNE, former Indiana state treasurer, who lives in Zionsville, Indiana, recently completed an intensive first-hand investigation of state finances...

...Immediately thereafter, sensing the public reaction I had heard ev­erywhere to the effect "that guy wants to tax everything" (even though there had been no new or increased taxes in Ohio in fifteen years), the gover­nor set out on a speaking tour of the state to recapture his shaken prestige...

...Labor unions have long fought the sales tax because they feel the work­ers bear a disproportionate share of its burden...

...After traveling 6,000 miles and in­terviewing governors, tax experts, and the man-on-the-street in the in­dustrial bread basket of mid-America and along the eastern seaboard and southern United States, I can only regret that there is no comparable central body to which the American people can turn to make sense out of their crazy quilt state tax struc­tures...

...To most it was all a confused con­glomeration...

...Unfortunately there was no common yardstick I could pro­vide for each to measure his state's tax burden and performance in rela­tion to another state in ready, mean­ingful terms...

...Governor Williams was trying to get a net income tax through a Republican-dominated leg­islature long opposed to such a tax on principle (a General Motors exec­utive told me in all seriousness that he was for the sales tax because "the poor pay too little and the wealthy are paying 91 per cent"), and Gover­nor Furcolo was asking a Democratic-controlled legislature to forget its traditional opposition to a sales tax...

...Despite the political sup­port he had received in the past from the labor unions, he said he would approve an increase in the sales tax...

...Ribicoff apparently disagreed with the eco­ nomic philosophy of Governor Rocke­ feller when he noted that the cost of the highway construction would not be so great as it seemed because the state would get back all but $148 million from the federal government and by using borrowed funds they would be able to build a highway system on a "pay-as-we-grow" basis that otherwise "would have to wait more years (fifteen) than we can af­ ford on a 'pay-as-you-go' basis...

...In my opinion the property tax is the most inequitable and antiquated tax base of all and makes about as much sense as it used to for the French to tax the number of windows in a home...

...This ap­proach was characteristic of the east­ern seaboard states I visited, in con­trast to their Midwestern neighbors who were constitutionally prohibited from borrowing except in the most limited fashion...

...Michigan was in the worst trouble of all, but not because she was a "wel­fare state," a popular misconception fostered by the nation's press...

...By mid-summer Governor Williams had given up all hope for his net in­come tax...

...If she were, she wouldn't rank 34th among the states in per capita expenditures in this field...

...Today there is no such atmosphere of crisis...

...Recog­nizing it for the palliative it was, the legislature made the bill effective for only 18 months, and immediately set out to place before the electorate in November 1960 proposals for more basic solutions, including a referen­dum on the net income tax and the removal of constitutional limitations on the sales tax...

...Massachusetts had even gone to the extreme of using bond money for the purchase of typewriters...

...I had noted this in Michigan, a state as close to financial bankruptcy as it has been my experience to witness...

...At year's end the legislature en­acted a stop-gap proposal which in­creased the corporation franchise tax, raised the price of liquor sold in state-owned stores and the tax on cig­arettes, other tobacco products, and beer, and added a new tax on tele­phone and telegraph services...

...State em­ployees told us how painless were the "payless days" as merchants, banks, and the state employes' credit union extended credit to them—without in­terest...

...Whereas Michigan's Williams used a rifle with his net income tax pro­posal and then switched to a shotgun, Governor Michael DiSalle of Ohio used a shotgun from the beginning to get the $200 million he said he need­ed to bring Ohio's public welfare and health programs up to date...