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Is the U.S. Decentralizing? U.S. Government Structure Distribution of Local Governments, 1997 U.S. Government Structure PER CAPITA PERSONAL INCOME, 2001 Size of Government Rising Government Revenue as a Percent of U.S. GDP Federal Share has Stayed Steady State and Local Governments’ Revenue Shares have Risen Does the Revenue Side Suggest a Pattern of Greater Devolution? Interstate Commerce Interstate Commerce Other Controls over State & Local Revenues Expenditure Patterns Tell a Similar Story to Revenues Distribution of Government Expenditures State and Local Expenditure Patterns Federal contributions to state/local finance Intergovernmental Revenue from the Federal Gov’t as a Percent of S&L Direct General Expenditure Is the U.S. Decentralizing? PRESENTED BY WILLIAM F. FOXPROFESSOR OF ECONOMICSUNIVERSITY OF TENNESSEEOctober 28, 2002U.S. Government Structure50 States87,504 Local DistrictsU.S. Government Structure50 States87,504 Local DistrictsDecentralization at the local level –Fewer School Districts, More Other Special Districts, More CitiesPER CAPITA PERSONAL INCOME, 2001Greater than $30,472$25,000 to $30,472Less than $25,000U.S. Average = $30,472High (CT) = $42,435Low (MS) = $21,750Size of Government RisingShare of tax revenues in GDP has risen slowly, but continuously since WWII. The pattern has slowed since the early 1980’s but has been sustained.Government Revenue as a Percent of U.S. GDPFederal Share has Stayed SteadyFederal revenues were increased in WWII. The share has varied within a narrow range in the intervening years, the personal income tax has grown as the primary revenue instrument. The revenue share has been maintained as federal expenditures slowly moved from defense to social programs. Bush tax cuts and stimulus package, if retained, will reduce the share of GDP paid in federal taxes.Does the Revenue Side Suggest a Pattern of Greater Devolution?Greater share of revenue at the sub-national level –much of the state growth result of high elasticityStates have considerable capacity to tax what they choose, except they are precluded from taxing interstate commerceCongress determines the meaning of interstate commerceInterstate CommerceInterstate mobility makes S&L revenue generation more difficult and Congress has not facilitated state revenue collectionGrowing rapidly and has important implications for S&L sales and corporate income taxesNational government gets all of the political gains from not facilitating S&L revenue collection but has no revenues at stakeCongressional decisions are pushing S&L towards property and individual income taxesInterstate CommerceCongress has limited S&L ability to taxInternet Tax Freedom ActLocal taxation of DBSTaxation of interstate travelSupreme Court rulings have limited some federal steps to define interstate commerce expansively. Other Controls over State & Local RevenuesGeneral political climateTax CompetitionEffects tax levelsEffects choice of tax instrumentsOften negotiated tax structuresMakes it harder to tax high income individualsDistribution of Government ExpendituresFederal contributions to state/local financeBig increase in federal aid in the 1960’s and 70’s. Reduced significantly during late 1970’s and 1980’s. Revenue sharing was eliminated.Pattern has reversed in the 1990’s. The main factor has been Medicaid (health care for low income recipients), which has grown very rapidly. New federal programs have not been the main factor.Intergovernmental Revenue from the Federal Gov’tas a Percent of S&L Direct General Expenditure