State Tax Problems

Report Outline
Budget Troubles of State Governments
Existing Tax Structures in the States
Long-Range Pressures on State Budgets
Special Focus

Budget Troubles of State Governments

Advent of Fiscal Reckoning for the States

Along-Postponed DAY of fiscal reckoning has arrived for many states of the American Union. During most of the years since World War II, the great majority of state governments have lived beyond their income. Despite rounds of tax-raising in 1947, 1951, and 1955, the increase in state tax receipts has lagged substantially behind the rise in state outlays. In 1958, the revenues from all sources of all the states were not sufficient to cover the year's total expenditures.

Between 1946 and 1958, state tax revenues climbed from y$4.9 billion to $14.9 billion, an increase of 204 per cent, while over-all expenditures (including payments to local governments) were rising from $7 billion to $28.1 billion, a jump of 314 per cent. The deficits which might otherwise have resulted were covered in part by surpluses piled up during and immediately after the war, when opportunities for expenditure were severely restricted. The remainder of the gap was closed chiefly by borrowing. Long-term indebtedness of the states soared 556 per cent between 1946 and 1958, from $2.3 billion to $15.1 billion.

Since completion of the initial drive to catch up on war-delayed improvements, the bulk of state debt has not been contracted on behalf of projects ordinarily financed by bonds backed by the general credit of the state; it has been contracted for the kind of projects which can be financed by borrowing secured by the proceeds of particular taxes or other specific forms of revenue.