State-Local Finance in the War Emergency

August 16, 1941

Report Outline
Prospective Aggravation of Tax Conflicts
State-Local Fiscal Experience in the World War
Present State and Local Fiscal Outlook
Special Focus

Prospective Aggravation of Tax Conflicts

The national defense program is certain to have significant and far-reaching effects not only on federal finances but on the fiscal systems of state and local governments as well. Although the immediate outlook for state and local finances is favorable, because of the upward movement of national income, it is clear that prospective increases in the federal tax load will further aggravate the conflict between federal, state, and local tax systems. There is a strong possibility that the total burden of taxation will become so heavy within a few years that a readjustment of traditional fiscal relations between the various units of government in the United States will become imperative.

This stage appears already to have been reached in Canada, where the central government's war effort is relatively more extensive, and the burden of the tax levies to finance it is relatively heavier, than in the United States. Because of the steep increases in Dominion tax rates, and the necessity of levying taxes on subjects hitherto taxed exclusively by the provincial governments, growing difficulties are being experienced in collecting provincial levies. The Dominion government has asked the provinces, as a temporary war measure, to withdraw from the field of income taxation, and has offered to reimburse them for at least a part of the revenues thus lost. British Columbia has acceded to the request, and observers predict that circumstances may soon compel all of the other provinces to do likewise.

Treasury Study of Intergovernmental Tax Relations

The Treasury Department announced, June 12, that it was “taking steps to reexamine the problem of federal-state-local fiscal relations.” Pointing out that “the importance of this matter is growing because of increasing pressure on common sources of federal and state revenues,” the Treasury made known that a committee of experts, headed by Luther Gulick, director of the Institute of Public Administration, had been appointed to study the problem “both as it affects the nation today in the midst of a tremendous national defense program and as it merits thought with respect to post-war domestic economic adjustments.” Special committees of the National Tax Association and the National Association of Tax Administrators are also studying tax conflicts and other phases of federal-state-local fiscal relations.

ISSUE TRACKER for Related Reports
State and Local Taxes
May 04, 1966  Local Income Taxes and Revenue Needs
Feb. 13, 1963  State and Local Taxation
Dec. 10, 1958  Local Income Taxes
Aug. 16, 1941  State-Local Finance in the War Emergency
Sep. 28, 1937  State Control of Local Finance
Jul. 09, 1932  New Sources of State and Local Revenues
Sep. 16, 1930  Rising Cost of State and Local Government
Nov. 24, 1926  Increasing State and Local Taxation
Jul. 20, 1925  Problems of State and Local Taxation
State and Local Taxes
State, Local, and Intergovernmental Relations
U.S. at War: World War II