Committee on Economic Security (CES)

Volume VI. Social Insurance

B. Financial Aspects

THE FINANCING OF THE ECONOMIC SECURITY PROGRAM

by
Joseph P. Harris

The economic program includes the following activities, each of which requires financing:
1. unemployment compensation
2. old-age benefits
3. federal aid to state plans providing:
a. old-age assistance,
b. aid to dependent children,
c. blind pensions,
d. child welfare and health services,
e. public medical care services.

Unemployment compensation and old-age benefits will be financed by payroll taxes levied upon employers and employees, and hence will not required financing through ordinary taxes. The other parts of the program will require public support through general taxation. This section of the report deals with the broad financing implications of the program.

Unemployment Compensation and Old-Age Benefits.

The two forms of social insurance provided by the Social Security Act--unemployment compensation and old-age benefits--will be covered first, followed by a consideration of the various forms of federal aid to the states for welfare purposes. The financing of these federal aids to the states will require the raising of revenues through general taxation, while the unemployment compensation and the federal old-age benefit plans are each self-supporting, requiring no governmental contribution out of general tax receipts. Both of these social insurance plans involve large sums of money annually, and both raise the necessary revenues through payroll taxes. The Federal payroll tax designed to support State unemployment compensation plans (by the tax crediting device) is levied wholly upon employers, while the tax designed to raise the revenue for old-age benefits is levied upon employer and employee in equal amounts. State plans for unemployment compensation, however, may require employee contributions. Of the six States which have enacted unemployment compensation laws to date, three States--New Hampshire, Washington, and California--have required employee contribution, while New York, Wisconsin, and Utah have not.

The rate of contributions. Both forms of social insurance start in with a low rate of contribution but increase the rate at intervals thereafter until the maximum rates obtain. The unemployment compensation payroll tax levied upon employers starts at 1 percent in 1936, and increases to 2 percent in 1937, and 3 percent in 1938 and thereafter. The old-age benefit tax measured by the payroll (bunt not counting more than $3,000 annually for any employee) starts at 1 percent each upon employer and employee in 1937, and increased by .5 percent at 3-year intervals thereafter until it reaches the maximum rate of 3 percent in 1949.

These two forms of social insurance involved by far the largest expenditures provided by the Social Security Act. It has been estimated that the tax receipts for unemployment compensation will total between $800,000,000 and $1,000,000,000 annually within a few years when the maximum rates become effective, while the total tax receipts for old-age benefits paid by employee and employer is estimated at $1,700,000,000 for the year 1949, when the maximum rates become effective. The Federal old-age benefits payments, though small for a number of years, are estimated at $3,500,000,000 for the year 1980. These large sums dwarf by comparison the Federal aids to the States for old-age assistance, aid to dependent children, and the other activities covered in th Social Security Act. They are designed to cope with two of the greatest causes of insecurity--unemployment and old age.

Estimated receipts from the unemployment compensation tax. The receipts from the payroll tax designed to support unemployment compensation plans, including payments made to State unemployment compensation plans, have been estimated as shown in Table I.

Benefits payable. These taxes will be utilized to pay unemployment compensation and the cost of administration (estimated at about 10 percent). Table II shows the estimated wage losses and benefits which might have been paid if such a system had been in operation between 1922 and 1933.

It is extremely significant that less that one-sixth of the total loss would have been compensated by a 3 percent tax upon payrolls. A 3 percent tax would, therefore, appear to be wholly inadequate to meet the problem, but it must be borne in mind that unemployment compensation is restricted to the most serious unemployment by several customary limitations. Benefits are usually limited to about 50 percent, and are payable only after the employee has undergone a waiting period of from 1 to 4 weeks. Benefits are paid for only a stipulated maximum period. The employee is not compensated for most partial unemployment. Under these restrictions, the payment of as low as one-sixth of the total wage loss will provide considerable security for the worker, serving in normal times to tide him over between employment's so that he is not forced to apply for public charity. In view of the large wage loss covered by this type of social insurance, it can hardly be contended that less should be provided in benefits. The more valid criticism is just the opposite--that the benefits are inadequate.

Estimated receipts from taxes to support old-age benefits. The revenue estimates of the combined taxes upon employers and employees for the support of Federal old-age benefits is given in Table III.

It will be noted that the taxes increase at 3-year intervals during the first 12 years of operation, reaching a maximum rate in 1949. This will enable industry to adjust itself to the half of the total tax borne by the employer.

The estimates of future reserves in the old-age account. The tax receipts during the early years will greatly exceed the benefit payments. The Social Security Act requires an annual appropriation to the old-age reserve account (from which benefits will be paid) of an amount sufficient to meet the actuarial requirements of the sytem. It is anticipated that in fact an annual appropriation equal to the receipts from the taxes upon employers and employees will be made, and a large reserve will be accumulated, which by its interest earning will bear a large part of the cost of future benefit payments. This is indicated in Table IV.

The adoption of payroll taxes. Payroll taxes are the accepted method through out the world for financing these forms of social insurance, though most countries provide also some governmental contribution out of general tax receipts. The policy of making these social insurance plans self-supporting was adopted after long consideration. This was believed desirable in order to remove any 8impl.ication of charity which would result from public support through taxes. At the same time, it was recognized that unemployment compensation would never cover all unemployment, and would have to be supplemented by some form of public works or relief, particularly during periods of severe unemployment. Similarly it was foreseen that many aged persons would not be covered by the system of Federal old-age benefits, and those who became dependent would have to be supported by Federal-State old-age assistance.

The policy of separating social insurance from public charity was adopted with the recognition of the fact that large public expenditures would have to be made to supplement these forms of social insurance.

Payroll contributions are particularly appropriate as a means of revenue to pay unemployment compensation and old-age benefits, in which the amount of benefits is determined with reference to the wage rates. In each case the contribution may be properly considered as a legitimate cost of production. Old-age insurance provides for the spreading of the wages over the remaining lifetime of the worker, instead of concentrating them upon the span of employed years.
Unemployment compensation is closely analogue to workmen's compensation, for which the contributions are based upon the payroll.

Effects of payroll taxes upon industry. The actual effects of the xxx payroll taxes upon employers, starting at 1 percent in 1936 and increasing 6 percent in 1949, are not subject to any accurate prediction. This extra labor cost may be (1) borne by the employer, or (2) passed on to the consumer xxx increased prices, or (3) shifted to the employee through a lowering of wage xxx. What will actually happen in any particular case will depend upon xxx circumstances. Employers will obviously desire to pass this charge on xxx the consumer, but failing this, owing to a competitive market, price structure, or other reasons, employers would have to absorb the charge of pass it back to the employee. Doubtless the cost will be borne in part by employee, employer, and consumer, but it is impossible to predict in what proportions. Since the tax is applied uniformly throughout the country to all industries alike (excepting agriculture and domestic service, religious and charitable institutions, etc.), it will tend to be passed onto the consumer in the form of higher prices. The gradual increase in the rates over a period of 13 years will facilitate this.

Effect of payroll taxes upon prices. The effect of a payroll tax upon prices is often exaggerated. According to the latest available U.S. Census of Manufacturers, labor costs amounted to only 21 percent, on the average, of the value of the product. This means that a 1 percent payroll tax would add only .21 percent to the price of the product, assuming the entire tax is passed on. A 3 percent tax would add .63 percent to the price of the product, and a 6 percent tax 1.26 percent. The payroll tax, however, is cumulative, and applies not only to manufacturing, but also to other phases of production and consumption. In order to appraise the effect of a payroll tax upon prices, it is necessary to consider the total cumulated labor cost in products and services affected by the tax. It is usually estimated that the cumulated labor cost of goods or services averages somewhat less than two-thirds of the final price. This would indicate that a 1 percent payroll tax would result in an increase in prices of about .67 percent, but when we consider that the payroll taxes for unemployment compensation and old-age insurance apply to only about one-half of the gainfully occupied workers, it is apparent that a payroll tax of 1 percent will result in an increase of prices by about .33 percent. This is probably a low figure, owing to the fact that the average wages of the covered employees may be assumed to exceed that of exempted employees.

Table III. Revenue Estimates (from Taxes on Employees and Employers Imposed by Title VIII, Section 801 and 804) {1}
Combined Rate of Tax	Fiscal Year Received Into Treasury	Estimated Fiscal Year Receipts	Combined Rate of Tax	Fiscal Year Received Into Treasury	Estimated Fiscal Year Receipts
2 percent	1937	$278,8000,000	4 percent	1944	$1,185,900,000
2 percent	1938	560,200,000	4 percent	1945	1,196,900,000
2 percent	1939	565,600,000	5 percent	1946	1,359,400,000
3 percent	1940	714,600,000	5 percent	1947	1,523,300,000
3 percent	1941	864,800,000	5 percent	1948	1,536,900,000
3 percent	1942	873,000,000	6 percent	1949	1,706,300,000
4 percent	1943	1,028,800,000	6 percent	1950	1,877,200,000
{1} Each of the two taxes is estimated to produce one-half of the total receipts shown.

Table IV. Estimated Appropriations, Benefit, Payments, and Reserves under Title II. (In millions of dollars)
Fiscal Year Ending June 30	Appropriation For Reserve	Interest On Reserve	Benefit Payments	Balance In Reserve
1937	255.5	0	1.9	253.7
1938	513.5	7.6	7.2	767.5
1939	518.5	23.0	14.5	1,299.5
1940	662.2	38.8	22.0	1,973.6
1941	807.2	59.2	29.7	2,810.3
1942	814.8	84.4	52.8	3,656.6
1943	970.0	109.8	94.2	4,642.1
1944	1,126.6	139.3	142.9	5,765.1
1945	1,137.0	173.0	191.2	6,883.9
1946	1,291.4	206.5	249.2	8,132.7
1947	1,447.1	243.9	314.5	9,509.2
1948	1,460.1	285.2	377.4	10,877.0
1949	1,821.1	326.3	442.1	12,382.4
1950	1,733.3	371.5	505.5	14,031.7
1955	1,861.2	615.8	887.8	22,115.7
1960	1,939.1	844.2	1,379.9	29,543.9
1965	2,016.9	1,040.9	1,844.0	35,898.5
1970	2,094.8	1,210.9	2,303.5	41,366.7
1975	2,172.7	1,341.8	2,872.1	45,368.3
1980	2,180.5	1,406.0	3,511.3	46,942.7

What the actual result in prices will be is quite unpredictable. It is of course, quite obvious that labor costs will be increased by the rate of the tax. Even this statement is subject to reservation, for in the long run the system of benefits may influence wages, and the payroll taxes be passed back to the employee in lowered wage levels. It is also subject to the further reservation that old-age benefits will permit employers to increase the efficiency of their plants by retiring superannuated employees, and thereby make savings which offset the payroll taxes.

It is impossible to foretell just how much of the payroll tax will be passed on to the consumer in increased prices. This will depend upon many economic factors, and will vary very widely between the extreme, on the one hand, of the entire tax being passed on, and, on the other hand, of none of the tax being passed on to the consumer. Labor costs vary extremely in the part which they play in the total price to the consumer. In manufacturing costs, Table V shows that labor costs are extremely small in food products, oil and gas, and tobacco, amounting in each case to only about 10 percent of the value of the product or even less. In the manufacture of flour and butter, for example, labor costs amount to only 5 percent to the value of the product. A payroll tax of 1 percent would increase the manufacturing cost of these items by only .05 percent. On the other hand, textile and agricultural machinery, aircraft and boats, machine tools, pottery, and jewelry show relatively high labor costs, ranging from 34 percent for jewelry to 52 percent for aircraft.

Payroll contributions versus other forms of taxes. The contention that social insurance should be financed by general taxation rather than contributions by employee and employer disregards the real character of social insurance. It is not a public charity given out as a dole, but is an insurance which the worker and his employer buy as they would any other insurance. Some Governmental contribution is appropriate, and is made in most countries, but complete Government financing without any contribution either from the employee or the employer would be contrary to the essential principle of social insurance. Payroll taxes for social insurance are used the world over.

Table V. The cost of a 1, 3 and 6 percent tax on payrolls of wage earners and salaried workers {1} for selected industries in terms of value added by manufacturers and total value of products
Industry	Earnings (wages plus salaires {1} (in 0000s)	Total Value of Products (in 0000s)	Value Added by Manufacture (in 0000s)	Cost of Payroll Taxes per Dollar of Value of Product
				1936, 1% tax	1937, 3% tax	1949, 6% tax
TOTAL	$6,618,109	$31,358,840	$14,610,401	$0.0021	$0.0063	$0.0126
Food and kindred products	771,829	6,604,036	2,393,021	.0012	.0036	.0072
Beverages	19,480	111,297	69,424	.0017	.0051	.0102
Bread	221,883	919,778	491,313	.0024	.0072	.0144
Butter	20,507	385,512	68,669	.0005	.0015	.0030
Preserves	54,834	439,958	171,568	.0012	.0036	.0072
Cereals	9,065	111,016	56,011	.0008	.0014	.0048
Confectionary	29,614	211,833	97,669	.0014	.0042	.0084
Flour	31,373	574,210	135,539	.0005	.0015	.0030
Malt Liquors	41,780	345,947	266,753	.0012	.0036	.0072
Distilled Liquors	3,071	60,850	36,934	.0005	.0015	.0030
Meat Packing	144,954	1,490,895	287,546	.0010	.0030	.0040
Textile Products	1,154,186	4,811,238	2,351,403	.0025	.0075	.0150
Rags	9,526	92,125	33,578	.0010	.0030	.0060
Wool rugs	20,863	71,425	41,393	.0029	.0087	.0174
Women's clothing	147,107	846,300	389,876	.0017	.0051	.0102
Men's clothing	105,813	445,320	230,580	.0074	.0072	.0144
Cotton goods	232,240	861,170	457,734	.0017	.0081	.0162
Dyeing and finishing	71,972	278,942	136,140	.0016	.0078	.0156
Hats	13,744	40,600	21,462	.0033	.0099	.0198
Knit goods	148,487	498,390	260,689	.0030	.0090	.0180
Shirts	28,287	119,717	60,060	.0024	.0072	.0144
Silk and rayon goods	82,086	290,878	146,967	.0028	.0084	.0168
Forest Products	343,982	1,127,605	618,223	.0030	.0090	.0180
Furniture	92,389	297,730	155,143	.0031	.0093	.0186
Mechanically processed wood	11,942	41,523	23,777	.0019	.0087	.0174
Paper and allied products	219,037	1,173,743	518,696	.0019	.0057	.0114
Bags	7,158	49,379	20,083	.0014	.0042	.0084
Boxes	47,552	223,004	96,678	.0021	.0063	.0126
Paper	100,440	560,963	249,196	.0018	.0054	.0108
Printing and publishing	582,432	1,733,437	1,355,592	.0054	.0102	.0204
Book binding and blank books	20,038	56,011	40,325	.0036	.0108	.0216
Printing Books, music	169,924	519,980	378,751	.0033	.0099	.0196
Printing Periodicals and newspapers	332,352	1,004,999	20,299	.0033	.0099	.0198
Chemical and allied products	311,540	2,117,513	1,149,040	.0014	.0042	.0084
Druggists' preparations	20,969	148,776	103,205	.0014	.0042	.0084
Paints and varnishes	36,607	289,442	136,416	.0008	.0074	.0048
Patent and proprietary remedies	15,003	138,145	99,913	.0011	.0033	.0066
Rayon and allied products	43,706	156,932	112,901	.0026	.0084	.0160
Soap	20,451	200,128	136,621	.0010	.0030	.0060
Products of petroleum and coal	201,719	1,871,494	585,933	.0009	.0027	.0056
Gas (manufactured)	68,129	295,480	216,191	.0023	.0069	.0138
Refining	111,360	1,378,632	314,200	.0008	.0024	.0048
Rubber Products	125,440	472,744	261,347	.0027	.0081	.0162
Other than tires and shoes	37,183	131,411	73,530	.0018	.0084	.0168
Tires and tubes	70,648	299,713	159,921	.0024	.0072	.0144
Leather and its manufactures	254,071	996,773	452,036	.0025	.0075	.0150
Boots and shoes	159,884	553,425	267,129	.0029	.0087	.0174
Leather, finished	68,909	237,202	99,025	.0021	.0063	.0176
Stone, clay, and glass products	175,818	608,699	396,944	.0029	.0087	.0174
Cement	18,280	86,921	59,989	.0001	.0063	.0126
Glass	54,858	191,948	128,538	.0029	.0087	.0174
Pottery	21,004	43,718	31,539	.0048	.0144	.0288
Iron and steel and their products (not including machinery)	612,296	2,463,001	1,062,171	.0025	.0075	.0150
Blast furnace products	13,774	213,685	29,729	.0026	.0018	.0036
Bolts, etc.	9,762	32,874	17,524	.0030	.0090	.0180
Stems and hot water apparatus	25,693	69,234	49,173	.0137	.0111	.0222
Rolling mill and steel work products	304,099	1,143,889	451,800	.0227	.0081	.0162
Tin cans	27,004	207,916	70,900	.0013	.0030	.0078
Nonferrous metals and their products	212,723	1,068,753	427,526	.0020	.0060	.0120
Aluminum products	14,862	61,464	27,436	.0024	.0072	.0144
Jewelry	14,144	42,652	25,869	.0334	.0102	.0294
Machinery (not including Transportation equipment)	695,549	2,069,419	1,280,230	.0014	.0102	.0204
Agricultural implements	12,936	30,539	18,561	.0042	.0126	.0252
Electrical machinery	163,874	553,431	310,917	.0030	.0090	.0180
Machine tools	18,736	41,434	30,590	.0045	.0135	.0070
Radio and phonographs	37,103	121,802	63,281	.0031	.0093	.0186
Textile machinery	23,855	60,323	41,945	.0040	.0120	.0240
Transportation equipment	328,746	2,058,195	765,905	.0019	.0057	.0114
Aircraft and parts	13,874	26,460	18,503	.0052	.0150	.0312
Motor vehicle bodies and parts	174,188	761,225	321,592	.0023	.0069	.0138
Motor vehicles	129,162	1,096,946	329,179	.0012	.0036	.0072
Ship and boat building	41,191	92,696	61,524	.0145	.0135	.0270
Miscellaneous industry	258,586	2,312,635	679,043	.0011	.0033	.0066
Cigars and cigarettes	51,054	777,148	200,999	.0007	.0001	.0042
{1} Excluding officials Source: Census of Manufacturers, 1933, release of January 23, 1935.

The taxes for unemployment compensation and old-age insurance are clearly distinguishable from general taxation. They are designed to support forms of social insurance of great interest and value both to the employee and his employer. That this type of taxation would be unsuitable for the general support of government may be admitted, but this has little if any bearing upon tis for the financing of social insurance directly beneficial to employee and employer, and by wages. A payroll tax is consistent with the fundamental assumption of these insurance's, namely, that they constitute a legitimate part of the labor cost.

Effect upon the cost of government to the general taxpayer. It may be printed out also that social insurance is to be distinguished from ordinary governmental expenditures. It does not create new economic burdens to society, but provides a method of spreading existing economic risks and burdens over a great group, thus lightening the devastating effects upon individual families.

Instead of increasing the load of the general taxpayer, it lightens it xxx avoiding much of the destitution which has led millions of families and individuals to apply for public relief. Without the adoption of systems of social insurance the burden of public support of destitute persons in the future may achieve tremendous proportions.

Federal Aids to the States

In addition to unemployment compensation and old-age benefits, the Social Security Act provides for several aids to the States for the support of existing public welfare activities closely identified with the major causes of economic insecurity. This is essentially a new Federal policy recognizing a permanent responsibility of the Federal Government to aid the States in providing old-age assistance, aid to dependent children, aid to the blind, and financial assistance for public health measures. Federal support of unemployment relief has been regarded as a temporary, emergency policy. It may be pointed out, however, that Federal aid to the States for public health work, particularly infant and maternal hygiene, is now new.

The amount of the appropriations for these Federal aids to the States for welfare purposes authorized for the first fiscal year (1935-36) is given below.

Old-age assistance	$49,750,000
Aid to dependent children	24,750,000
Maternal and child health	3,800,000
Crippled children	2,850,000
Child welfare	1,500,000
Vocational rehabilitation	841,000
Public health	8,000,000
Aid to the blind	3,000,000
Total	$94,491,000

The amounts necessary to finance these activities in future years will increase very substantially, particularly for old-age assistance and aid to dependent children. The staff of the Committee on Economic Security estimated 200,000,000, and by $300,000,000. The consulting actuaries made much higher estimates, amounting to $400,000,000, by 1940, and to $500,000,000 by 1975. It is expected that the Federal subsidy required for aid to dependent children, upon the basis of paying one-third of the cost, will increase to $50,000,000 annually within a few years. The other activities for which Federal aid is provided require relatively small appropriations, and will probably remain fairly constant over a period of years.

The policy of Federal aid to the States for regular, recurring welfare activities, upon a permanent basis, as provided in the Social Security Act, is extremely significant. Although well established in other countries, it is essentially new in the United States. Heretofore, Federal aid to the States has been confined largely to education, militia, experimental stations, and highways. The following pages set forth the factual data dn some of the principal considerations bearing upon the problem of financing old-age assistance, aid to dependent children, and the other welfare activities included in the Social Security Act, showing in some detail the imperative need of Federal aid.

The Cost of Public Welfare

Until a few years ago, public expenditures for ordinary welfare activities {1} in the United States were very small. Definite figures for the entire country are not available, but from estimates which have been made by Professor Clarence Heer, expenditures for ordinary welfare activities for all units of government were as follows:{2}

{1} By "ordinary public welfare expenditures" is meant expenditures for charitable institutions, outdoor relief, welfare departments, and part of the health, hospital, and correctional expenditures which may be regarded as public welfare. It does not include expenditures for military veterans.

{2} Heer, Clarence E., University of North Carolina, Trends in Public Welfare Costs, 1931. (Unpublished manuscript.)

	Amount (Thousands)	Percent of national income	Percent of total cost of Government
1903	$105,806	0.52	6.7
1913	182,587	0.55	6.25
1918	250,044	0.44	{1}
1923	372,291	0.54	3.63
1928	535,459	0.64	4.29
{1} Any computed percentage would be meaningless owing to abnormal World War costs of Government.

It is particularly significant that the ratio of the expenditures for ordinary welfare purposes to the national income remained fairly constant during the first quarter of the century, amounting to approximately .5 percent. In comparison with the total cost of Government, however, welfare expenditures showed a considerable decline, dropping form slightly under 7 percent in 1903 to about 4 percent in 1928.

Since 1928 there has been a very great increase in public expenditures for welfare work. Most of this increase has come since the depression and in large measure is a result of the depression. As would be expected, such statistics as are available for recent years show an extraordinary increase. Many of our large cities met the problem of destitution in the early years of the depression by increasing the expenditures for charities enormously. Municipal expenditures for charities in cities of 300,000 population and xxx in the United States increased from $22,000,000 in 1924 to $114,000,000 in 1932.{2} Some of the cities, however, have curtailed their expenditures xxx welfare purposes very sharply since the Federal Government entered the field of unemployment relief. As a specific illustration, Cincinnati spent $52,000 for charities in 1928, $900,000 in 1931, $600,000 in 1932, but only $55,000 in 1933.

{2} From United States Census Bureau reports, Financial Statistics of Cities.

As a further illustration of the trend of increased local expenditures for social work, the city of Boston spent $4,768,000 for charities and hospitals in 1929, and spent approximately $16,000,000 in 1933 and in 1934. The expenditure for charities and corrections by the counties of the State of Wisconsin totaled $6,390,000 in 1924. By 1928 the figure had increased to $8,583,000, and by 1932 to $17,331,000, or nearly three times the expenditures of 1924. Milwaukee County had an expenditure of less than $3,000,000 in 1928 for social work, whereas it increased the amount to approximately $6,000,000 annually for 1931 and the following years. The counties of California spent $12,285,000 for charities in 1924, about $20,000,000 in 1928 and $32,000,000 in 1932. The counties of the State of Washington spent $1,250,000 for relief and charities in 1923 (not including hospitals or corrections), and approximately $4,000,000 in 1933. In 1932 the counties of Washington spent over $7,000,000 for public charities, but the total dropped off in the following year with the establishment of the State Emergency relief Administration.{1}

{1} These figures have been compiled from the State and local financial reports in connection with studies of the financial abilities of counties of Wisconsin and Washington.

These few figures show the rapid rise in public expenditures by local cities of Government for social work since 1920. They show also a tendency to decline with the last year or two, in part because of Federal expenditures for unemployment relief, but also because of the financial difficulties caused largely by welfare expenditures) in which many local governments have found themselves during the last several years.

The largest present expenditure by far for public charity comes under classification of unemployment relief, financed partly by the Federal xxx and party by the State and local governments. The total expenditures in 1933 for this purpose, including local, State, and Federal governments and including the expenditures for unemployment relief and civil xxx administration, amounted to $967,000,000 while the total for 1934 was approximately $2,000,000,000. These figures, of course, are much larger than total expenditures for ordinary welfare purposes and have caused considerable apprehension. Those who fear the consequences of such large expenditures raised the question, "Where is the money coming from?"

It is significant in this connection to make some comparisons. In 1933 xxx spent about 2.5 percent of our national income for unemployment relief in 1934 approximately 4 percent. During this latter year we were taking xxx of about 15 percent of the total population with approximate 4 percent xxx national income. These expenditures are not extraordinary when compared to the size of the problem with which we are coping, nor are they xx in comparison with our expenditures, say, for military purposes and xxx. For a number of years we have spent in the neighborhood of xxxx,000,000 annually for veterans without thinking that the finances of xxx were being imperiled thereby. It would hardly seem appropriate xx alarmed at a similar expenditure during a national emergency for xxx of millions of families whose wage earners have lost employment.

However, even including emergency relief, expenditures for welfare xxx in the United States are not large when compared with those of Great Britain. Great Britain, with a population of only about one-third of ours xxx for public charity an social insurance, including old-age pensions, employment insurance, and health insurance, a total of $1,369,000,000 in 1932.{1} If health insurance is omitted, the expenditure was approximately $1,200,000,000. A similar expenditure in the United States in proportion to population would run about $4,000,000,000 annually. In 1933, while $25,000,000 was spent in the United States for old-age assistance, Great Britain spent nearly $400,000,000 for the aged through noncontributory and contributory pensions. In order to provide as adequately as Great Britain for the aged, we would need to spend annually about $1,200,000,000 for this purpose.

{1} Complied from the Statistical Abstract for the United Kingdom, 1934, and the Abstract of Labour Statistics for the United Kingdom, 1931-33.

It is inevitable that future public welfare expenditures in the United States will be considerably larger than they have in the past. For a quarter of a century prior to the depression the public expenditures for social work amounted to only about .5 percent of our national income, but in the future we will undoubtedly have to contribute a much larger share of our national income for this purpose. Even assuming the return of a high degree of prosperity, a large number of our population may nevertheless be xxemployed and destitute. The financing of public charity in the future institutes our largest problem of public finance. Only one aspect of this problem is discussed here, namely, the need for Federal aid.

It is often stated that the care of the poor is a function of the local community, and that accordingly the Federal and State Governments should provide financial support only when it becomes imperative. This theory of exclusive local responsibility for public welfare activities does not fit into the economic and social structure of society today. The local community is no longer a self-contained unit. Our economic life overflows our political boundaries of townships, municipalities, counties, and States. Destitution today arises from causes with which the local community is powerless to deal, xxx and creates financial obligations beyond the capacity of the local resources. The whole problem of financing public welfare activities needs to be considered in the light of the present conditions.

The Financial Condition of Local Units of Government

Public welfare has been historically a concern of the local government in the United States. The States have confined their charitable activities largely to the institutional care of special classes of mental and other defectives requiring specialized treatment which the local units were not able to provide. Within recent years State subsidies for special types of charity, such as old-age assistance, mothers' pensions, and unemployment relief have been provided. Public charity has been regarded as a community rather than a State responsibility. In New England the municipality is entrusted with the function of poor relief, but in many other parts of the country it is the function of the county or the township. In a few States the municipalities and the counties share the responsibility.

Since the local units of government are considered to have the primary responsibility for public welfare activities, and in the past have spent by far the larger part of all State and local expenditures, it is important to examine their financial conditions and abilities to ascertain whether they will be able to carry on their ordinary welfare activities on the present basis in the future, and increase their contributions to old-age assistance and mothers' pensions.

Prior to 1932, local governments carried the entire expense for public unemployment relief, except for State aid in four States in 1931. At present they are contributing part of the funds in all but a very few States. During the year ending September 30, 1934, they contributed $196,500,000, or 16.8 percent of the total unemployment relief cost, and 10.3 percent of the combined expenditures for unemployment relief and civil works administration (not including supplies of the latter).

It would be conservative to estimate that the revenues of the local xxx of government for the entire country declined 25 percent between the calendar years 1931 and 1933, at the very time that relief costs were mounting. The trends within the last 3 years may be summarized as follows: (1) local governments are in much worse financial condition at the end of the period, with increased indebtedness, funded and floating, with former reserves wiped out, and many sinking funds depleted to tide over the lean years; (2) local services have been drastically curtailed, for example, by closing public schools or shortening their terms, dismissing public employees, reducing such services as recreation, health, playground, xxx, and library, now more needed than every before, and impairing protective services; (3) because of the imperative need, expenditures for relief purposes have been increased at the expense of the other services of the city, and xxx methods of financing which have brought many local governmental units xxx unsound positions; and (4) the salaries of public employees have been substantially reduced.

Local units of government have borne a heavy load of unemployment relief, and other types of aid, and many of them have borrowed to the limit of their capacity. Loans for relief purposes have been incurred at excessive rates of interest by many local governments. Date are not available as to the amount of unemployment relief financed locally by means of loans, but it can be said safely that a vast majority of unemployment relief has been paid for in this manner.

Tax revenues and assessed valuations. The total revenue receipts of all local governments in 1932 amounted to $6,343,982,000, of which the tax receipts constituted $4,715,897,000.{1} Since the nontax revenues, such as subventions from the State, earnings of public service departments, and departmental services and fees, would not be available for new social services, only tax receipts need be considered. Of the total tax receipts of local united of government in 1932,. $4,361,307,000, or 92.4 percent, came from the general property tax. In the years 1932 and 1933, when the depression reached its lowest point, and the relief burden increased so rapidly, tax receipts from general property dropped very substantially throughout the country. Assessed valuations, which until this time had not been lowered to correspond with the decline in real and personal property values, were very materially lowered at this time in most sections of the country. To top it all, a group of States adopted severe general property tax limitation measures, thus further reducing this almost exclusive source of revenue of local government.

{1} Unless otherwise noted, the 1932 figures on local governmental finance are taken from the report of the Bureau of the Census, Financial Statistics of State and Local Governments, 1932, published in 1934.

The situation has not grown much better with the improved conditions during 1935. Although property tax collections are gradually improving, many local governments have been operating with large deficits for a number of years, and very substantial improvements in tax collection are needed. Some of these deficits have been cleaned up temporarily by funding them through long-term bonds. The debts and debt charges of local governments have been increased very materially at the very time when sources of revenue were declining. This will cause trouble in the future. The only thing which has saved the local governments from financial collapse has been the Federal consumption of a large part of the responsibility for providing unemployment relief.

Too much emphasis cannot be placed upon the fact that the local units government are supported almost entirely by taxes on general property, a form of taxation which cannot be expanded further to take care of new costs xx government. While the statement that the general property tax has "broken down" is an exaggeration, for it is still our principal tax, nevertheless, it would be foolish not to recognize its limitations. It has often been pointed xxx that although the general property tax was fairly well suited to the economy of a hundred years ago, it is not so suitable today. Assessable general property no longer represents the bulk of existing wealth, and is no longer unfair measurement of ability to pay. Equally important is the fact that the cost of government has increased greatly, and too great reliance upon one source of revenue, such as the general property tax, inevitably has brought about resistance to this form of taxation. A third factor, perhaps more important than the others, has been the constant increase of property values in the past, which has made it possible to collect high property taxes. The general property tax has required the land owner to share with society the xxx increment of his property caused by the rise in land values, which prevailed over a long period of time.

The increase in assessed valuations for the entire country has been as follows:

1860	$ 12,084,560,000
1880	17,139,903,000
1902	35,332,317,000
1912	69,452,936,000
1922	124,616,675,000
1932	163,317,104,000 {1}
{1} Bureau of the Census of the United States, Wealth, Public Debt, and Taxation, 1922: and Financial Statistics of State and Local Governments, 1932.

The assessed valuations in 1930 amounted to $167,562,315,000, or about $43,000,000,000 more than that of 1922. During the first two decades of the century, assessed valuations were increasing at the rate of about 100 percent each 10 years.

Table VI shows in more detail the assessed valuations and general property tax receipts in 1922 and 1932.

The statistics of the city of Detroit, shown in Table VII, while not entirely typical, nevertheless indicate the trend of assessed valuations and tax levies in metropolitan areas.

It is of note that in 1915, when Detroit had slightly less than 700,000 population, its assessed valuation was only $554,382,000. By 1930 the population had more than doubled, but the assessed valuation had increased to $3,774,861,000, or 681 percent of the 1915 figure. The net increase amounted to $3,250,479,000. The total taxes levied on general property during the period amounted to $739,806,000, or 22.9 percent of the increase in assessed valuation. Owners of property could stand a tax of about 2 percent of assessed valuation annually upon property which was increasing in value at a much more rapid rate.

But between 1930 and 1934 assessed valuation dropped as rapidly as it had risen. Detroit suffered a decline of $1,553,456,000 in assessed valuation, and doubtless the market value of property in the city declined substantially more. The tax levy also declined, but not as rapidly as assessed valuations. The tax levy in 1934 amounted to 2.46 percent of the assessed valuation, which is considerably higher then for any of the other years listed.

A similar decline in assessed valuations has taken place generally throughout the county. Governor Horner in his message to the Illinois Legislature on November 19, 1934, pointed out that assessed valuations in Illinois had dropped from $8,500,000,000 in 1930 to a little more than $5,500,000,000 in 1933, a decrease of 36 percent, or almost exactly the rate of decrease in Detroit. In Wisconsin, the assessed valuations declined from $5,975,952 in 1929 to $4,262,704,000 in 1933, a decrease of $1,713,246,000, or 28 percent. It is probably safe to assume that assessed valuations throughout the country have declined by at least 25 percent since 1930, and that property values have declined by a substantially larger amount. Under these conditions, it is quite obvious that the general property tax will have great difficulty in standing up during a period of declining or even stationary valuations. Not only is it incapable of expansion to meet new seeds, but it will have to be supplemented by other sources of revenues to carry on the ordinary functions of government.

Table VI. Assessed Valuations and General Property Tax Receipts of Local Units of Government, 1922 and 1932.
Year	Assessed Valuation		General Property Tax Receipts
	Amount (millions)	Per Capita	Amount (millions)	Per Capita	Percent to Assessed Valuation
1922	$124,617	$1,104	$2,973	$26.33	2.39%
1932	163, 317	1,311	4,361	35.03	2.67%
Increase 1922-1932	39,700	20%	1,388	8.70	0.28%
Percent Increase	31.9%	18.8%	46.7%	33.0%	11.7%
Source: United States Bureau of the Census, Health, Debt, and Taxation, 1922, and Financial Statistics of State and Local Governments, 1932.

Table VII. Trend of Population, Assessed Valuation, and Tax Levy, City of Detroit, 1915-1934.
Year	Population	Assessed Valuation		Tax Budget
		Amount (millions)	Per Capita	Amount (millions)	Per Capita	Percent to Assessed Valuation
1915	673,498	$554	$8.23	$13.1	$19.46	2.36
1920	993,687	1,698	17.09	35.1	35.34	2.06
1925	1,246,044	2,757	22.12	56.2	45.10	2.03
1930	1,573,985	3,774	23.99	76.1	48.37	2.01
1934	1,573,985	2,251	14.31	55.5	35.28	2.46
Source: Upson, Lent D., Growth of City Government of Detroit, 1931, and later statistics supplied

Tax delinquency. With the decline in assessed valuations has come an increase in tax delinquency. A comprehensive survey of tax delinquency, made by the United States Bureau of the Census, showed that on December 31, 1933, the outstanding uncollected and delinquent taxes of the current levy made in 1932-33 (not including delinquencies against former levies), amounted to $909,465,000, or 20.5 percent of the current tax levy of $4,414,187,000.{1} This survey covered all units of government for the entire country for which data were procurable, with estimates for the remainder. The rate of delinquency varied widely from section to section, and from state to state, ranging from 6 percent in Massachusetts, 7 percent in Louisiana, and 8 percent in Wyoming, to 40 percent in Michigan, 37 percent each in Illinois and North Dakota, and 6 percent in Florida. New England generally had the lowest rate of delinquency, with an average of only 8.5 percent, while the East North Central states (Ohio, Indiana, Illinois, Michigan, and Wisconsin) had the highest average delinquency, 34 percent. The other geographical divisions (except the East South Central--Virginia, West Virginia, Kentucky, and Tennessee--with a delinquency on only 12.5 percent) had about the same average as that for the entire country, though there was considerable variation from State to State within the same geographical division. It should be borne in mind that these figures are averages for an entire State or for a group of States, and that the tax delinquencies for particular cities, counties, or school districts varied much more widely.

{1} All statistics on tax delinquency are taken from the mimeographed report of the United States Bureau of the Census, Current Tax Delinquency, prepared under the supervision of Dr. Lent D. Upson, 1934.

A study of the trend of tax delinquency, involving about one-third of the property tax levies of the country, showed the following percentages of the current levy delinquent 1 year after it became due and payable:

 

Year of levy	Percent of current levy delinquent at the end of 1 Year
1928-29	5.95
1929-30	6.41
1930-31	8.64
1931-32	12.68
1932-33	17.02

In many communities the problem of tax delinquency is much more severe than the above average figures for the entire country would indicate. These figures show only current delinquencies and not the accumulated delinquency, which in many communities exceeds the annual levy. In many rural sections, particularly timber and cutover lands, studies indicate that large solid areas, sometimes almost whole counties, are now tax delinquent and are approaching the time of foreclosure.

Tax limitations. A widespread movement has grown up within recent years to place definite limits upon the tax rate which may be levied upon general property. Although property tax limitations have been utilized very widely by many States throughout the country for years, the present movement involves such more drastic overall limitations. Five States, Ohio, West Virginia, Michigan, New Mexico, and Oklahoma, have recently amended their constitutions to adopt tax limitation measures. Indiana and Washington have adopted recent tax limitation measures by statute. Similar movements are underway in many other States, and such limitations will probably spread. In 1934, Florida adopted by a heavy majority an amendment exempting homesteads up to a $5,000 valuation from ordinary taxes. Similar proposals are being made in other States, the net effect f which would be to reduce the revenue from general property taxes by at least a half.

The past experience of this country with fixed property limitations has ben very unsatisfactory. The assessed valuations vary so widely within a State that a maximum rate suitable for one community will force other local governments to discontinue essential services, while some units with high assessed valuations will not be affected at all. Tax limitation measures in the past have caused local governments to resort to unsound financial practices, such as increased borrowings, temporary loans, and emergency appropriations for ordinary activities, until the financial structure of the government was very badly strained, and the limitation was modified. Despite this experience, the protest against the general property tax is so insistent that it may be expected that such limitation measures will be adopted more widely. The only thing which will forestall such adoptions will be the voluntary reductions of general property tax levies. Homestead exemption measures, such as adopted in Florida threaten to destroy the general property tax as a major source of revenue for local governments.

The cumulative effect of (1) lowered assessed valuations, (2) lowered property tax rate limitations, and (3) tax delinquency is to reduce greatly the possible revenue of local governments from the general property tax. By way of illustration, let us assume that City A has its assessed valuation decreased by 25 percent. On top of that State adopts a tax limitation law which reduces the rate of the levy by 25 percent. The net levy of the city is reduced to 56 percent of what it was formerly. If to that is added a tax delinquency of 25 percent, the tax collections drop to 42 percent. This is not an extreme example, but would be fairly typical of the States recently enacting new property tax limitation laws. In many communities all three factors are operative, and in practically all communities two of them apply.

It is significant to compare the part which the general property tax plays in taxation in the United States and in Great Britain. In the fiscal year ending 1932, general property tax collections of State and local governments in the United States totaled $4,484,784, or 73.5 percent of State and local taxes, and 57.5 percent of total taxes collected by all units of government, including the Federal Government. In the United Kingdom, on the other hand, the property tax (rate receipts) of England and Wales, Scotland, and Northern Ireland totaled $177,409,000, or only 17.7 percent of the total tax receipts of the national and local governments.

Much larger State and Federal grants in aid to the local units of government will be required in the United States, and, in view of our general taxation structure, are in order. Table VIII, showing the ratio between local taxes (rates) and grants from the national government of England and Wales, is of significance.

Table VIII. Receipts of Local Authorities of England and Wales. (In thousands of pounds)
	Public Rates		Governmental Grants		Total
Year	Amount	Percent	Amount	Percent
1920	105,633	69	48,263	31	153,896
1922	170,871	69	76,663	31	247,534
1924	143,275	65	78,324	35	221,599
1926	143,598	64	84,634	36	233,232
1928	166,678	65	90,084	35	256,673
1930	156,311	59	107,828	41	264,140
1932	143,279	54	126,549	46	274,829

This table does not include earnings from public utilities or capital loans. During the past 10 years, the British national government has increased its xxx from slightly less than one-third of the total to almost one-half. The xxx cover practically all the ordinary functions of local governments, including education, public health, peer relief, highways, police, elections, and others. Grants in aid have been an important means for many years by which the national government has exercised supervision over the local governments, raising the standards of administration. By this means, for example, a high degree of national unity has been obtained in police administration.

Public debt of local governments. The trend of public debt is also very important in considering the financial abilities of the local units of government in the United States. The following table shows trend since 1902.

Trend of Net Indebtedness of Local Units of Government, 1902-1932
Year	Assessed Valuation	Net Debt Amount per capita (thousands of dollars)		Percent to Assessed Valuation
1902	$35,338,317	$1,630,070	$20.74	4.61
1912	69,452,936	3,475,954	35.81	5.00
1922	124,616,675	7,754,196	71.32	6.22
1932	163,317,104	15,215,881	122.10	9.32
It should be noted that the above figures of net debt include the debts incurred for public service enterprises, as well as for general governmental purchases. Data are not available on the net debt, excluding public service enterprises. {1}
{1} In 1932, however, the gross debt of all local units of government was $16,680,567,000 and in 1931 the debt of municipalities for public service enterprises amounted to $2,950,575,437.

During the last 10 years the net indebtedness of local units of government increased by $7,461,685,000, or 96.2 percent. This large increase in indebtedness is the result, in part, of the inability of the tax revenues of the local units to meet the expenditures. With the decline in assessed valuations, the increase in debt service charges, and the increased need of public charity, the debt situation is serious. It is probable that, as a result of the lowered assessed valuations since 1932 and the increased debts, the present net indebtedness is about 12 percent of the assessed valuation.

Not only has the debt of local units of government mounted very rapidly during the decade ending with the fiscal year 1932, but the trend during the depression has been upward at an even greater rate. The following table shows this trend:

Net Bonded Debt of Cities of Over 300,000 Population. (Excluding self-supporting indebtedness) January 1, 1929 and 1934 {1}
City	1929 (thousand)	1934		Percent Increase, 1929-34
		Amount (thousand)	Per Capita
New York	$714,853	$1,467,933	$211.80	105.0
Chicago	255,068	363,458	113.57	50.0
Philadelphia	356,796	419,459	15.00	17.0
Detroit	186,653	226,971	144.69	23.0
Los Angeles	103,092	113,387	91.51	10.0
Cleveland	102,907	102,258	113.57	0.0
St. Louis	37,418	62,483	76.02	67.0
Baltimore	111,619	118,753	147.54	6.0
Pittsburgh	71,117	72,154	107.70	1.0
Boston	58,238	71,837	91.96	27.0
San Francisco	39,767	95,232	150.12	139.0
Milwaukee	41,556	58,709	101.57	41.0
Total	2,075,090	3,192,634		539.0
{1} From Rightor, C.K., "The Bonded Debt of Cities" National Municipal Review, June, 1929 and June 1934.

The increase in indebtedness is significant when we take into account the fact that assessed valuations during the period dropped by about 25 percent. Several of the cities listed above are not charged with poor relief, which is under the county, and accordingly the increase in their debt cannot be attributed to the increased cost of relief. In New England, where poor relief is a function of the municipalities, the indebtedness of the 12 cities of over 100,000 population increased from $160,834,902 in 1929 to $205,232,932 or an increase of 27.5 percent.

Trend of local governmental expenditures. The trend of revenues, expenditures, and indebtedness of all cities of 300,000 population and over from 1924 to 1932 is given in Table II. Particular attention is given to public welfare expenditures, embracing charities and hospitals, and their relation to total governmental revenues and expenditures. The table includes all local unites of government within the cities, including a part of the county allocated to the city. Accordingly, it gives a complete picture of the trends of local finances for the period, but, of course, is confined to the large cities. Unfortunately it stops with the fiscal year 1932, which for many cities ended during the first half of the calendar year. The downward trend of tax receipts brought on by the depression as just becoming evident. The reductions of ordinary governmental costs were generally instituted in the calendar year 1932, and consequently are not indicated in the table. The great increase in charities in 1932 over previous years indicates that the cities were being forced to meet the problem of unemployment relief, though it had not yet become as acute as it did later. The percentage of public welfare expenditures to the total operating and maintenance expenditures for all departments increased from 5.58 percent in 1924 to 12.28 percent in 1932. Most of the increase, however, came with the last 2 years.

Table IX. Revenues, Expenditures, and Indebtedness of Cities, 1924-1932 {1} (in millions of dollars)
Items	1924	1926	1928	1930	1932	Per capita 1932 (dollars)	Percent Distribution 1932	Percent Increase or Decrease 1924-1932
Population	21,900,636	23,626,400	24,060,300	24,932,200	25,820,600
Revenues, total {2}	$1,338	$1,606	$1,884	$1,952	$1,824	$78.65	100.0	36.3
Taxes:
General Property	964	1,141	1,317	1,368	1,324	51.26	72.6	27.4
Other	62	101	114	132	96	3.72	8.8	17.0
Other revenues {2}	392	364	432	452	404	15.66	22.2
Expenditures, total	1,463	1,735	2,006	2,170	1,956	76.93	100.0	35.0
Operation and maintenance All general departments	916	1,055	1,206	1,332	1,397	54.10	70.3	52.5
Welfare, total	51	58	74	93	172	6.45	8.7	239.7
Charities	32	26	23	39	114	4.49	5.8	416.3
Hospital	29	32	41	54	57	2.22	2.9	97.5
Percent welfare to all general departments	(5.58%)	(5.46%)	(6.12%)	(6.99%)	(13.28%)			(120.1%)
Interest {3}	163	196	229	263	273	10.59	13.8	67.3
Outlays	383	484	572	574	316	12.24	15.9	17.5
Gross indebtedness {2}	3,678	4,341	5,032	4,778	4,489	173.83		22.1
{1} Cities of 300,00 population and over in 1924 only: (includes part of county and other local Governmental units apportioned to the city.) {2} Exclusive of public-service enterprises. {3} Expenses of public-service enterprises for "interest" could not be segregated. Source: United States Bureau of the Census, Financial Statistics of Cities.

During the last several years while local Governments have been in financial straits, their relief expenditures have been increased and their other costs have been substantially curtailed. The following table shows the trend in a number of cities or States for which data are available, not including funds furnished by the Federal Emergency Relief Administration.

Trend of Relief Expenditures (in thousands of dollars)
City or State	1929	1930	1931	1932	1933	1934
Detroit public welfare Department	$3,338	$6,943	$16,462	$10,362	$1,822	$3,960
Boston public welfare Soldiers relief	2,520	3,550	6,725	9,567	10,200
Cincinnati, Including Charities and hospitals	895	983	1,049	2,145	894
Wisconsin counties, charities & corrections		9,617	12,294	17,331
Washington Counties	1,767	2,148	2,528	7,333	3,951
Milwaukee County (not Including State and FERA aids)	3,019	4,198	6,860	6,929	5,593

It will be noted that the local expenditures reached their peak before the Federal Government came into the field of unemployment relief in 1933. In general, local expenditures then declined. In some cities, as for example Detroit, local expenditures had been forced down earlier owing to the financial inability of the city to continue its relief activities upon a large scale.

The large cities (or counties in which they are situated) which have remained in a strong financial position have greatly increased their welfare expenditures, while decreasing their other Governmental costs. The same trend applies equally to smaller cities and to rural areas. However, the local units of Government which have had acute financial difficulties have been forced to curtail their welfare activities, not because of a diminution of the need, but simply because they were at the end of their resources. In many of the power communities the ordinary charities for unemployable groups have been curtailed or discontinued and these groups placed upon unemployment relief.

Summary. The financial condition of local units of Government, and the trend over recent years, shows very clearly the need of State and Federal aid to carry on the present welfare activities, and to provide any expansion of them, as for old-age assistance. The general property tax, which is relied upon almost exclusively for local support of welfare activities, faces further reductions in the future, and is not susceptible to expansion. Property values and assessments have greatly declined within recent years, and the long upward tend of land values has been halted. Property limitations have been adopted by a number of States, and are likely to be adopted by others. Local indebtedness has increased rapidly over a long period, and has taken an upturn during th depression, even though the general property taxes, from which those debts must be paid, have fallen off greatly. Increased public charities have forced many cities into an unsound financial position, and have necessitated curtailments of other Governmental activities.

The Financial Condition of State Governments

The financial condition of States is quite different from that of the local Governments. The States have largely given up the general property tax as a source of revenue (it constituted less than 20 percent of the total tax receipts in 1932), and within the last decade have gone in for new taxes, particularly income, inheritance, and several types of sales or gross income taxes. Unlike the local units of Government, the States have the power to enact new forms of taxation. Like the local units of Government, States too are facing financial difficulties, and the legislature of 1935 had to grapple with the problem or providing new forms of taxation to take care of State and local Governmental requirements.

Recent Trends. For the most part, available statistics upon State revenues and expenditures stop with the fiscal year 1932 (which usually ended during the first few months of the year) and consequently do not indicate present conditions. States generally reached the peek of their renews in the fiscal year of 1931, the taxes being collected largely in 1930 on business of 1929. The fiscal year 1932 showed a decline of only 9 percent in tax collections over 1930 and 1931, and slightly exceeded the collections of 1929. State expenditures for 1932 declined only 2 percent from the 1931 figure, and considerably exceeded disbursements during 1930, 1929, and prior years. Until 1932, many of the States were in excellent financial position, and had not been forced by financial stringency to reduce their ordinary expenditures. The situation, however, has been greatly altered within the last two years, when the full force of the depression has hit the States. The trend in State tax receipt and expenditures for the cost of Government from 1925 to 1932, inclusive, are given in Tables X and Xi.

It will be noted from Table I that State tax receipts rose by 46.2 percent during th seven years form 1925 to 1932. The general property tax showed a decline of 10.7 percent, dropping from 32.4 percent of the total to 19.8 percent. All the other classes of taxes increased, motor fuel showing the highest increse-375 percent. Inheritance and income taxes were adopted widely during the period, and showed substantial increases. The total tax receipts, exclusive of motor fuel and motor vehicle licenses, however, showed an increase of only 14.2 percent, or, on a par capita basis, 3.9 percent.

While the tax structure of State Governments was undergoing such fundamental changes within the brief span of seven years, the cost payments showed no such changes in distribution. Highway maintenance and outlays, which

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Table X. Trend of State Government Tax Receipts, 48 states, 1925-1932 (in millions of dollars)
Tax	1925	1926	1927	1928	1929	1930	1931	1932	Per capita 1932 (dollars)	Percent Distribution 1932	Percent Increase or decrease 1925-1932
Total Tax receipts General property Bank and other corporation stock Inheritance Income Other special property Business licenses Nonbusiness licenses Total Motor fuel Motor licenses Total motor	$1,107 359 69 86 26 54 214 9 821 67 199 286	$1,264 376 66 91 39 73 236 10 894 137 234 371	$1,355 370 76 106 55 65 254 11 941 166 249 414	$1,507 381 78 128 56 77 264 10 1,000 283 265 507	$1,612 350 83 149 75 95 273 14 1,042 283 287 570	$1,780 345 74 181 77 92 296 15 1,084 400 296 696	$1,778 371 89 183 51 65 294 15 1,074 423 282 705	$1,619 320 84 143 48 56 267 16 938 416 266 681	$13.09 2.58 8.68 1.15 0.38 0.45 2.16 0.11 7.56 3.35 2.14 5.50	100.0 19.8 5.2 6.8 2.9 3.5 16.5 0.9 57.9 25.7 16.4 42.1	46.2 -10.7 22.3 66.4 72.6 501 25.0 54.7 14.2 375.7 33.7 138.2
Source: United States Bureau of the Census, Financial Statistics of States.

 

Table II. Trend of State Government cost payments (48 states) 1925-1932 (in millions of dollars)
Item	1925	1926	1927	1928	1929	1930	1931	1932	Per capita 1932 (dollars)	Percent Distribution 1932	Percent Increase or decrease 1925-1932
Total expenditures	$1,606	$1,605	$1,718	$1,880	$2,051	$2,281	$2,500	$2,446	$19.76	100.0	52.3
From State revenues:
General Government	86	87	100	98	114	110	127	122	0.98	4.96	42.0
Protection to persons and Property	56	60	64	70	72	60	84	87	0.70	3.55	55.9
Development and conservation of natural resources	56	63	65	66	70	74	75	72	0.58	2.92	26.8
Conservation of health sanitation	25	26	28	29	32	34	37	37	0.30	1.51	49.3
Highways	144	157	171	204	219	251	240	245	1.98	10.00	66.9
Charities, hospitals, corrections	169	179	193	202	216	214	230	271	2.19	11.06	60.6
Schools	396	413	445	481	516	556	289	591	4.77	24.12	49.4
Libraries, recreation, miscellaneous	104	57	55	58	60	62	66	68	0.55	2.78	-34.6
Interest	68	77	79	87	94	101	111	110	0.89	4.65	62.4
From other revenues:
Highways	419	399	404	459	533	635	758	695	5.60	22.35	65.9
Schools	36	36	35	40	41	40	40	30	0.24	1.21	-17.5
Other	49	55	80	85	85	114	144	120	0.97	4.89	147.0
Sources: United States Bureau of the Census, Financial Statistics of States.

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