May 13, 1971
Page 14864
INTERGOVERNMENTAL REVENUE ACT
Mr. MUSKIE. Mr. President, during the past several days, many Senators have inquired about provisions in the Intergovernmental Revenue Act of 1971, which I introduced last week. In response to those inquiries, I have prepared answers to 10 questions I am repeatedly asked about my legislation and about revenue sharing. I ask unanimous consent that the document I have prepared, entitled "Questions and Answers on the Intergovernmental Revenue Act, of 1971," be printed in the RECORD.
There being no objection, the document was ordered to be printed in the RECORD, as follows:
QUESTIONS AND ANSWERS ON THE INTERGOVERNMENTAL REVENUE ACT of 1971
1. What is the Intergovernmental Revenue Act of 1971? .
A.. The International Revenue Act of 1971 is a general revenue sharing proposal introduced by Senator Muskie in the 92nd Congress. It would provide approximately $6 billion in financial assistance to State and local governments during the first full year after its enactment.
The Intergovernmental Revenue Act of 1971 is based on the recommendations of the Advisory Commission on Intergovernmental Relations, a quasi-governmental organization whose purpose is to study and recommend ways to improve the relationships among Federal, State and local governmental units. A similar bill was introduced in the last Congress by Senator Muskie and former Senator Goodell and received seven days of hearings before the Senate Subcommittee on Intergovernmental Relations.
The original Muskie-Goodell bill, introduced June 25, 1969, called for $6 billion in revenue sharing and tax credits. After that bill was introduced, the administration submitted its first revenue Sharing bill which called for $500 million of shared revenues in its first year. The $5 billion general revenue sharing bill proposed by the Administration this year, 18 months after it submitted its first revenue sharing bill, comes closer to the funding level of the original Muskie-Goodell proposal.
2. What is the difference between general and special revenue sharing?
A. General revenue sharing would provide financial assistance to State and local governments with no strings attached. These funds could be used for any purpose as the State or local governmental units see fit.
The concept of general revenue sharing was developed in 1964 by Walter Heller, former chairman of the Council of Economic Advisors. Heller intended general revenue sharing to be the vehicle through which the Federal Government, with greater resources, could assist State and local governments in meeting their fiscal crises
Special revenue sharing is very different. As designed by the Administration, special revenue sharing would replace many categorical grant programs. Special revenue sharing calls for the Federal Government to provide block grants to State and local governments in broad subject areas in place of funds that have heretofore been distributed to achieve specific purposes under categorical grant programs.
3. Since the Federal Government already provides $30 billion in assistance to State and local governments through categorical grant programs, why do we need revenue sharing?
A. We need revenue sharing because it would solve a different problem than is solved by categorical grant programs. Revenue sharing will provide financial assistance for State and local governments to use as they see fit to solve the problems which they consider most critical. Its purpose is to relieve the financial crises faced by many State end local governments. The "no strings attached" assistance under revenue sharing is much different from the assistance provided by categorical grant programs which State and local governments must use to deal with specific problems which are national in scope.
Revenue sharing is needed because the distribution of income and wealth varies so widely from State to State and locality to locality throughout the country. There are vast differences in the tax paying ability of the various States and communities across the nation. As a result, all governmental units cannot provide all the necessary services and facilities their people need. Revenue Sharing would supply the assistance to permit local governmental units to better serve their citizens. It is this specific problem within the federal system that revenue sharing is intended to solve.
The need for revenue sharing has become even greater in recent years as State and local governments have found it more and more difficult to raise enough revenue to pay for the services they must provide. Today, some cities and States are having to cut back on all types of services, including police and fire protection, because they cannot afford to pay for them. Revenue sharing is needed to provide financial assistance to these governments so they can, in turn, provide necessary services for their citizens.
4. If we enact revenue sharing, do we still need categorical grant programs?
A. Yes. Even if we enact revenue sharing we still need categorical grant programs. These programs are directed at critical problems, national in scope, which must be attacked by the Federal Government because the States and localities alone cannot deal with them or have not dealt with them effectively in the past.
Many States and communities have not responded affirmatively to demands for equal opportunity for all our citizens. Many have responded with less vigor than others to the educational needs of their people, and to the poor families who must rely on public assistance.
The failure of one community to provide adequate education for its citizens can affect life in other communities as its citizens who received inadequate educations move to other localities. Thus, the quality of education in all communities becomes a national concern, and national programs are needed to assure there are minimum standards of education that are met by all communities. The same is true of welfare, economic opportunity and many other categorical programs. Categorical grants attack specific problems, and that is why grant programs must be continued. In fact, our national domestic problems are so great today that we must not talk about gutting categorical grant programs. We must consider ways to expand them.
5. Is the only difference between the Intergovernmental Revenue Act of 1971 and the Administration revenue sharing bill that the Intergovernmental Revenue Act of 1971 provides $1 billion more in Federal assistance?
A. No. There are several distinct differences between the Intergovernmental Revenue Act of 1971 and the Administration package.
First, the Intergovernmental Revenue Act of 1971 allocates assistance to local governmental units on the basis of need as well as tax effort and population. The Administration bill does not include need as a criteria for distribution assistance to local governments.
Second, the Intergovernmental Revenue Act of 1971 is only a general revenue sharing bill. It has nothing to do with special revenue sharing. The Administration has sent seven revenue sharing messages to Congress this year – one on general revenue sharing and six on special revenue sharing.
Third, the Intergovernmental Revenue Act of 1971 has greater safeguards than does the Administration bill to assure that general revenue sharing funds will not be used for discriminatory purposes.
Fourth, the Intergovernmental Revenue Act of 1971 contains specific provisions to encourage State governments to reform their own systems of taxation. The Administration bill contains no such provisions.
Fifth, the Intergovernmental Revenue Act of 1971 provides for Congressional review of its operation by automatically terminating the appropriation under it after five years. That means the Congress will have to decide whether or not to keep the program after it has operated for five years. Under the Administration bill, the appropriation would run indefinitely without the requirement of close Congressional review.
6. How does the Intergovernmental Revenue Act of 1971 take need into account in apportioning assistance to local governmental units?
A. Need is one of three criteria that the Intergovernmental Revenue Act of 1971 takes into account in apportioning assistance to local governmental units. The other two criteria are population and the effort a local governmental unit has made to raise taxes on its own.
In an attempt to see that the large cities and counties which have the most severe problems receive assistance in accordance with their problems, the Intergovernmental Revenue Act of 1971 provides weighted shares to local jurisdictions of more than 25,000 population.
In determining those shares, the bill takes need specifically into account. It determines need by evaluating such data as the number of families earning less than $3,000 a year – the poverty level – and the number of families receiving public assistance in a particular jurisdiction.
In practice, the incorporation of the need factor means that the large local governmental units which are poor will receive a greater share per capita than the large governmental units which are better off. Under the Intergovernmental Revenue Act OF 1971, for example, the city of Baltimore in Maryland receives nearly six times as much assistance per capita as does Montgomery County, an affluent Maryland suburb of Washington. Under the Administration bill, which does not take need into account, Baltimore receives less than one-third more per capita than does Montgomery County.
7. Since the Intergovernmental Revenue Act of 1971 provides weighted shares for cities and counties over 25,000 population, don't local governmental units of under 25,000 population get the short shrift?
A. No. The Intergovernmental Revenue Act of 1971 actually provides greater flexibility in the pass-through of assistance to local governmental units of less than 25,000 population.
First, it gives the State government and local governments the option of entering into an agreement as to what the pass-through formula for all communities in the State, including those under 25,000, should be.
If no such agreement can be reached, the bill requires the States, in accordance with State law, to make a "fair and equitable distribution" to governmental units of less than 25,000 population based on such factors as need, population, tax burden and revenue raising effort. To assure that State governments do not keep a disproportionate amount of shared revenues for themselves, the bill stipulates that in no case may a State keep more than 60 percent of its entitlement for itself. It also prohibits a State from keeping a higher percentage of its entitlement than the ratio of the taxes it collects to the taxes collected by it and all local governments within it.
8. How does the Intergovernmental Revenue Act of 1971 guarantee that its funds will not be used in a discriminatory manner?
A. The bill creates a mechanism by which any individual citizen who believes that funds under the Intergovernmental Revenue Act of 1971 are being used in a discriminatory manner by a State or local government can sue that governmental unit directly. In this way, it provides an additional protection that those funds will not be used in a discriminatory manner.
9. How do you explain the fact that nine States receive less assistance under the Intergovernmental Revenue Act of 1971 than under the Administration general revenue sharing bill?
A. There are two reasons that nine States receive less under the Intergovernmental Revenue Act of 1971 than under the Administration bill. First, these States either have no State income tax or a very small income tax, and, as a result, they do not benefit significantly or at all from the provision in the bill which provides a 10 percent rebate to the States that have an income tax of their own.
Second, these States are, by-and-large, States which raise a high percentage of their revenue by means other than taxation. Under the Intergovernmental Revenue Act of 1971 those States only receive credit in their "tax effort" for the money they actually raise by taxation. The Administration's bill would make allocations on the basis of all revenues raised by these States, which includes some nontax revenues.
10. Is not revenue sharing alone, without reform of State and local systems of taxation, merely treating the symptoms rather than the causes of financial crises of State and local governments?
A. Yes. That is why the Intergovernmental Revenue Act of 1971, unlike the Administration bill, contains specific provisions to encourage reform of State tax systems.
The bill, for example, provides that States which collect income taxes of their own receive a rebate of 10 percent of the amount of income tax they collect. That provision should provide encouragement both for States which now de not have an individual income tax to enact them and for States which have inadequate State income taxes to make them better. In that way it will be an incentive to the States to raise more revenue on their own. The benefits of the rebate provision would also be passed through to local governmental units.
In addition, the bill offers, as a convenience to the States, to have the Federal Government collect State income taxes for those States who would like it to. That, too, should make it easier for States to utilize the State income tax since they won't even have to bother with collecting it.
The Administration bill has no such provisions to encourage State and local governments to improve their own tax systems.