The objective of this paper is to view the twentieth century changes in the structure of state taxation in a historical perspective to understand the tax burden acceptable at the state level and the incidence of that tax incidence from proportional to progressive taxes and vice versa. The tax burden and incidence in four different states from four different regions of the country, California, Indiana, Kentucky, and New York, will then be compared for the decade of the 1970\u27s to determine if a pattern of change in the tax burden and tax incidence existed at the time of the revolts

Slaymaker, Adrianne E.

English

eGrove (Univ. of Mississippi)

The Accounting Historians NotebookVolume 12Number 1 Spring 1989 Article 81989Tax burden and incidence in the history of taxationby state governmentsAdrianne E. SlaymakerFollow this and additional works at: https://egrove.olemiss.edu/aah_notebookPart of the Accounting Commons, and the Taxation CommonsThis Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It has been accepted for inclusion inThe Accounting Historians Notebook by an authorized editor of eGrove. For more information, please contact memanuel@olemiss.edu.Recommended CitationSlaymaker, Adrianne E. (1989) "Tax burden and incidence in the history of taxation by state governments," The Accounting HistoriansNotebook: Vol. 12 : No. 1 , Article 8.Available at: https://egrove.olemiss.edu/aah_notebook/vol12/iss1/8TAX BURDEN AND INCIDENCE IN THE HISTORY OF TAXATION BY STATE GOVERNMENTS The Accounting Historians Notebook, Spring, 1989 17 by Adrianne E. Slaymaker Wayne State University At the state level, taxpayers have more influence over their relative tax burden and tax incidence than they do at the federal level. While this influence has ex-isted since the formation of the United States, recently taxpayers have organized revolts against property taxation. The ad-vent of the passage of California's "Pro-position 13" in 1978 best illustrates this revolt. The objective of this paper is to view the twentieth century changes in the struc-ture of state taxation in a historical perspective to understand the tax burden acceptable at the state level and the in-cidence of that tax incidence from propor-tional to progressive taxes and vice versa. The tax burden and incidence in four dif-ferent states from four different regions of the country, California, Indiana, Ken-tucky, and New York, will then be com-pared for the decade of the 1970's to determine if a pattern of change in the tax burden and tax incidence existed at the time of the revolts. TAX INCIDENCE FROM 1770-1970 Historically, in the incidence of taxation by the states, progressive property taxation varied inversely with the state's more pro-portional taxation of income in a cyclical pattern. In the colonial period, when there was a relative equality of wealth among the taxpayers, a proportional poll tax was considered equitable and widely used. As the relative equality of wealth shifted, taxes were adopted to increase the progressiveness of the tax and shift the tax burden to the wealthier persons. This led to the adoption of taxes on property in-come as a method for taxing the wealth of property owners. When the tax burden born by property owning taxpayers became disproportionate to that of the ar-tisans and tradesmen, a "faculty" tax was initiated to tax the income producing ability of the artisans and tradesmen. In the late eighteenth and early nine-teenth centuries the tax on income from real and personal property was gradually changed by most states to a tax on the market value of the property. The proper-ty tax which emerged yielded a steady and predictable income to the states. The tax base was the assessed value. The rates were determined to provide the expected ex-penditures. Since the "faculty" tax was more difficult to assess and collect the new concept of property taxation led to the general demise of the proportional facul-ty tax. The early nineteenth century witness-ed the adoption of laws for flat or propor-tional taxation of income by a few of the southern states. During the period from 1820 to 1837 many states incurred substantial debt, issuing bonds to initiate internal improvement projects with the expectation that the debt would be retired by the generation of future revenue from those projects. The "panic of 1837" caught many of the states with unfinished projects. The pro-jected income from these unfinished pro-jects was not forthcoming to repay the ex-tensive debt incurred. Some of the states turned to a more proportional taxation of 1Slaymaker: Tax burden and incidence in the history of taxation by state governmentsPublished by eGrove, 1989income to provide the additional revenue, while others increased the rate of their more progressive property taxes. The southern states, in which the landowners had considerable wealth and influence, were the adopters of proportional income taxes while the northern states relied on increasing the rates of their progressive property taxes. The Civil War necessitated increasing taxation by all the states. The northern states increased their property tax rates still further. The southern states increased the rates of their income taxes until their loss. After the Civil War, the landowners in the south were no longer wealthy nor influen-tial and the tax structure throughout the south shifted towards the progressive pro-perty tax which was popular in the nor-thern states. Thereafter, taxation of in-comes by the states generally declined by repeal of the laws or by lack of enforcement. The decline in importance of the in-come tax during the last quarter of the nineteenth century increased the problems associated with dependence on the pro-perty tax. During this period, state governments provided an increasing number of services requiring rate increases for taxes on real and personal property. The inequity of taxing only property, and indirectly the income from the property, led to the concealment of ownership of in-tangible property and suggestions that a more progressive income tax should be added to supplement the progressive pro-perty tax. In the early twentieth century the sen-timents toward adoption of a tax to replace the "inequitable" personal proper-ty tax turned increasingly toward pro-gressive income taxes patterned after the newly enacted federal income tax. As the state expenditures for education and roads expanded, the pressure for alternative taxes increased. The sentiments were that the property tax level should remain con-stant and that the increased tax revenues should come from other sources. Since most states were still adverse to the idea of income taxation they increased their revenue through newly enacted gasoline and motor vehicle taxation. During the depression period of the 1930's state property tax and use tax col-lections lagged. To maintain services, more states began to enact progressive in-come tax laws. The Tax Policy League pro-vided the philosophical basis for this trend, stating in 1935 that; Property and income are both valid and practical indexes of taxpaying ability. The state and local tax system should rest squarely on both bases and equally on both [1935 p. 7]. While the trend toward state taxation of incomes was slowed when the federal tax rates were increased substantially, the in-itiation of withholding of income taxes en-couraged most states to adopt an income tax by the end of the second world war. TAX BURDEN AND INCIDENCE -THE 1970's As illustrated in the historical perspec-tive, the incidence of the tax burden within a state has varied from property to income and vice versa. The acceptable tax burden is difficult to quantify but the tax incidence relative to the tax base and the tax structure can be examined. For this study the states of California, Indiana, Kentucky, and New York will be com-pared. Both California and Indiana had visible taxpayer revolts during the 1970's. Kentucky and New York had legislative change without a visible revolt during the 1970's. In the 1960's the states further expand-ed their level of services in conjunction with the prevailing federal impetus toward the "great society". The expansion of ser-vices necessitated an increase in revenues. Unlike the early years of the century when 18 The Accounting Historians Notebook, Spring, 1989 2The Accounting Historians Notebook, Vol. 12 [1989], No. 1, Art. 8https://egrove.olemiss.edu/aah_notebook/vol12/iss1/8the states could impose new taxes on the motor vehicles used on the roads which re-quired the additional revenues, most states could rely on no new tax sources. Most of the few states which had been reluctant to enact income taxes did so, try-ing to equalize the tax incidence between the incomes from property and labor. During the latter 1960's the higher pro-gressive tax rates of the federal income tax was increasing the progressiveness of the tax incidence to all states. As the economy slowed in the early 1970's the states resisted raising the property tax rates. In-stead they increased the tax base, the assessed property values. At the level of taxation from all sources, many voters became increasingly sensitive to tax in-creases, especially taxation of property. The frequent failure of property tax measures for financing education was in-dicative of the resistance to increased taxation. At the beginning of the 1970's the total tax collections from the four states are given in Table 1. The tax burden of these taxes can be evaluated by use of either the per capita tax or the tax per $1,000 of per-sonal income. Table 1: The Tax Revenue for California, Indiana, Kentucky, and New York 1972 In both measurements, the greatest tax burden was for New York and the least was for Kentucky. (see Table 1) By the mid 1970's the total tax revenues collected had increased in all four states. (see Table 2) The relative tax burden per capita and per $1,000 in personal income had remained the same with New York the highest and Kentucky the lowest. The question becomes why did California and Indiana have the strong taxpayer revolts against the property tax during the 1970's? Indiana's revolt occurred in the early 1970's (1972) when the property tax was significantly reduced and the income tax modified towards a more proportional tax. California's revolt occurred in the later 1970's (1978) Table 2: The Tax Revenue for California, Indiana, Kentucky, and New York 1977 Total Property Tax Tota l Sales Tax To ta l Ind iv Income Tax To ta l Tax Revenue Percent o f To ta l Revenues Property Sales Ind iv Income Tota l Per Capi ta Taxes: Property Sales Ind iv Income Tota l Per $1000 Personal Income Property Sales Ind i v Income Tota l Ca l i fo rn ia 6729552 4046687 1838503 14105540 47 7 1 % 2 8 6 ' ) % 1 3 0 3 % 8 9 . 4 3 % 328 78 197.71 89 82 616.31 67 45 40 56 18.43 126.44 Ind iana 1246376 771452 283669 2434437 5 1 . 2 0 % 31 . 69% 1 1 . 6 5 % 9 4 . 5 4 % 235.57 145.81 53 61 434 99 54 64 33 82 12 44 Kentucky 244398 558280 219591 1166146 20 9 6 % 4 7 . 8 7 % 18 8 3 % 87 6 6 % 74 08 169.22 66 56 309.86 23.31 53 25 20.94 97 50 New York 5292321 4125964 3320187 14471878 3 6 . 5 7 % 28 5 1 % 22 9 4 % 88 0 2 % 288 16 224 65 180 78 693 59 54 62 42 58 34.27 131 47 Source: U.S. Bureau of Census, Census of Government, 1972. Tota l Property Tax To ta l Sales Tax To ta l I nd i v . Income Tax To ta l Tax Revenue Percent o f To ta l Revenues Property Sales Ind iv . Income To ta l Pet Capi ta Taxes: Property Sales Ind iv Income Tota l Per $1000 Personal Income Property Sales Ind iv Income Tota l Ca l i fo rn ia 10057671 7244938 3620933 23875304 4 2 . 1 3 % 30 3 4 % 15 .17% 8 7 . 6 4 % 459.53 3 3 1 0 2 165.44 955.99 64.13 46.20 23 09 133.41 Ind iana 1270693 1434431 514388 3454376 36 7 9 % 4 1 . 5 3 % 14 .89% 93 2 0 % 237.51 268.11 96.15 6 0 . 7 7 39 89 45 03 16.15 101.07 Ken tucky 390084 862208 469362 2078872 18 7 6 % 41 4 7 % 22 5 8 % 8 2 . 8 2 % 112.48 248.62 135.34 496 44 21.71 47.99 26.12 95.82 New Y o r k 8062557 6155893 5863564 22489616 3 5 . 8 5 % 2 7 . 3 7 % 2 6 . 0 7 % 8 9 . 2 9 % 449 62 343 29 326 99 1119.90 62 60 47.80 45.53 155 92 Source: U.S. Bureau of Census, Census of Government, 1977. despite the decline of 12 percent in the total revenues collected derived from the property tax. The answer to the question can be seen in the relative percent of the total revenues collected from each of the three major state taxes, property, sales and individual income. Both California and Indiana had relatively high property tax percentages when compared to the percentage of tax The Accounting Historians Notebook, Spring, 1989 19 3Slaymaker: Tax burden and incidence in the history of taxation by state governmentsPublished by eGrove, 1989collections from their income taxes in the 1972 census of state governments (for the fiscal year 1971). Kentucky and New York had a smaller variance. (see Table 1) When Indiana changed its tax structure in the early 1970's it lowered Table 3: The Tax Revenue for California, Indiana, Kentucky, and New York 1982 To ta l Property Tax To la l Sales Tax To ta l I nd i v Income Tax To ta l Tax Revenue Percent o f To ta l Revenues Property Sales Ind iv Income Tota l Per Capi ta Taxes: Property Sales Ind iv . Income Tota l Per $1000 Personal Income Property Sales Ind iv Income Tota l Ca l i fo rn ia 6293761 12069270 7467709 32452537 2 5 . 5 6 * 3 7 . 1 9 % 23. 0 1 % 8 5 . 7 6 % 350.42 509.94 315.52 1175.88 2 8 8 6 42 .00 25.99 96 84 Ind iana 1720850 1978557 801548 4829054 35 6 4 % 4 0 . 9 7 % 16 .60% 93 2 1 % 313.45 360 39 146.00 819 84 32.02 36 82 14.91 83 75 Kentucky 556771 1191491 802516 3136684 17 .75% 37 9 9 % 25 5 8 % 8 1 . 3 2 % 152 12 325 54 219.26 696.92 17.83 38.16 25 70 81.69 New Y o l k 10106904 8572376 9195204 31443261 32 14% 2 7 . 2 6 % 29 2 4 % 8 8 . 6 5 * 575.65 488 23 523 70 1587 57 49 94 42 36 45.44 137.73 Source: U.S. Bureau of Census, Census of Government, 1982. the percent of total taxes collected from property taxes and raised those collected from income taxes. (see Table 2) When California changed its tax structure, it dramatically lowered the percent of total taxes collected from the property tax and increased that of the income taxes. (see Table 3) Both New York and Kentucky were also lowering their relative reliance on the pro-perty tax. However, since the difference between the percent collections from these two taxes was not as great as in Indiana and California, these states did not ex-perience the taxpayer revolts. (see Tables 1-3) CONCLUSION Throughout the history of the United States, the states have relied heavily on in-come and property taxation for revenues. The type of taxes collected had depend-ed on the relative influence of the proper-ty owner versus the laborer. During the 1970's as the total tax burden increased, the taxpayers became sensitized to the in-cidence of the tax burden. During the 1970's two states which had a disproportionately large share of taxa-tion from the property tax, California and Indiana experienced taxpayer revolts toward equalization of the percent of the total taxes collected from properties and incomes. Two others, New York and Ken-tucky, in which the percent collections from the property and income taxes were more equal did not experience the tax-payer revolts. However, all four states did experience a decline in the percent of taxes collected from property taxes. In summary, the total tax burden borne by state residents does not promote a tax revolt. The incidence of the tax given by the proportion of total tax revenues that the particular tax comprises creates an at-mosphere for tax revolt. Thus, as the per-cent of total tax collections from the pro-perty tax rose to disproportionately high levels in comparison to the income tax the taxpayers revolted. REFERENCES Commerce Clearing House. State Tax Guide. Chicago IL: Commerce Clearing House, 1978. Due, John F. and Ann F. Friedlaender. Government Finance - Economics of the Public Sector. Homewood, IL: Richard D. Irwin, Inc., 1977. Frank, H.J. "Measuring the State Tax Burden". National Tax Journal. XXI, June 1959, pp. 179-85. Goode, H. The Individual Income Tax. Washington, DC: Brookings Institution, 1972. Haig, Robert M. "The Concept of Income - Economic and Legal Aspects". The Federal Income Tax. New York NY: Col-umbia University Press, 1921 pp. 3-21. 20 The Accounting Historians Notebook, Spring, 1989 4The Accounting Historians Notebook, Vol. 12 [1989], No. 1, Art. 8https://egrove.olemiss.edu/aah_notebook/vol12/iss1/8Halstead, D.K. and Weldon H.K. Tax Wealth in Fifty States -1977 Supplement. Washington DC: U.S. Government Prin-ting Office, 1979. Pechman, Joseph A. Federal Tax Policy. Washington, DC: Brookings Institution, 1972. Prentice-Hall, Inc. All States Tax Hand-book. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1983. Quindry and Currence. State and Local Revenue Potential. Washington DC: U.S. Government Printing Office, 1974. The Tax Policy League. "The Place of State Income Taxation in the Revenue System of the States". Washington DC: Tax Policy League, 1935. U.S. Bureau of Census. Census of Govern-ment. Volume 2, No. 2. 1972. U.S. Bureau of Census. Census of Govern-ment. Volume 4, No. 5. 1972. U.S. Bureau of Census. Census of Govern-ment. Volume 2, No. 2. 1977. U.S. Bureau of Census. Census of Govern-ment. Volume 4, No. 5. 1977. U.S. Bureau of Census. Census of Govern-ment. Volume 2, No. 2. 1982. U.S. Bureau of Census. Census of Govern-ment. Volume 4, No. 5. 1982. OSAMU KOJIMA DIES Japan's most noted accounting historian and a former trustee of the Academy of Accounting Historians, Osamu Kojima, died of heart failure on February 21, 1989, at the age of 76. Kojima was one of five life members of the Academy. He also established the Academy's Research En-dowment Fund in 1981 with a contribu-tion of $2,000 to commemorate his retire-ment from Kwansei Gakuin University in Nishinomiya, Japan. Professor Kojima had been a regular attendee at the quadrennial World Congresses of Accoun-ting Historians, but was unable to attend the recent meeting in Sydney because of illness. He was to have been the coor-dinator for the 1992 Congress in Japan. His Japanese colleagues will now carry out his intentions as it was Professor Kojima's dying wish that the 1992 World Congress be a success. Memorials may be made to Professor Kojima with contributions to the Academy's Endowment Fund. Send memorials to Dr. Ashton Bishop, Secretary, School of Accounting, James Madison University, Harrisonburg, VA 22807. SIXTH INTERNATIONAL CONGRESS OF ACCOUNTING HISTORIANS KYOTO-JAPAN AUGUST 20-22, 1992 The Sixth International Congress will be held in Kyoto, (Miyako Hotel) 1992 is the 500th anniversary of the discovery of America by Christopher Columbus Call for Papers: Please send proposed papers to the Preparatory Committee by January 1991. The Preparatory Committee of the Sixth International Congress of Accounting Historians c/o Kinki University School of Business and Economics Professor Okitsu 3-4-1 Kowakae, Higashiosaka, Osaka, 577, JAPAN The Accounting Historians Notebook, Spring, 1989 21 5Slaymaker: Tax burden and incidence in the history of taxation by state governmentsPublished by eGrove, 1989

Tax burden and incidence in the history of taxation by state governments

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Tax burden and incidence in the history of taxation by state governments

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