Taxation--Federal, State and Local

By James Mussotti, Executive Secretary California Toxpoyers' Association, Los Angeles

Address DeliveredBefore the Annual Convention oI the California Retaif Lumbermen's Association at San Eiego, November 8,1935

Mr. President, Mr. Chairman and Gentlemen of the Convention:

The problem of taxation menaces the entire economiq fabric of ttte Nation. Government is going rapldly into debt and exacting a tax burden from the people of over $9,500,000,000 a year. Our national debt has reached the high water mark of $30,000,000,000. In addition to that, we find that the states and their political subdivisions are in debt for another $20,m0,000,000, making the indebtedness of the country for governmental purposes alone some $50,000,0m,000.

To the average person a billion dollars doesn't mean anything because we don't deal in billions of dollars; it is_orly the government which deals in billions of dollars. When we tlanslate this huge indebtedness into terms which can be understood by the layman, we find that, if it were possible to divide equally among the families in the country the indebtedness -for governmental purposes, every farnily would have an indebtedness of $1,663. The enormity of this debt can readily be appreciated when we realize that, if it were possible likewise to distribute the annual national income of the country, each family would receive $1,587. In other words, the indebtedness of the family would be greater than the amount which represents the national income on a per family basis in the United States in the year 1934.

The cost of operating all the jurisdictions of gove,rnrnent in the United States represents an exaction of $517 per family per year. The tax actually collected by.thege governmental jurisdictions per family per year is $317. The difference between the $517, which represents the ,cost of government, and the $317, which represents the actual tax exactions by government, is approximately $200, which represents thq sum by which the government is annually going into debt on a per family basis.

The federal budget has been out of balance since 1930. still we 'continue our spending spree. Unless the federal budget is soon balanced, we will be faced with diire consequences which may bring untold suffering and disaster to the people of this country. Let us turn now to the situation which faces us in California.

For the fiscal biennium 1935-37, the State of California adopted a budget of $411,000,000. This is the highest budget in the history of the State. When considered in relation to the budgel of the local political subdivision within the State, it will lead to the heaviest tax exactions upon the people of the State of California ever before made in its fis'cal history.

The cumulative deficit in operating the state.government amounted to approximately $28,000,000 for the biennium which closed on June 30. 1935. As of June 30, 1937, the defi,cit in the general fund of the State of California will approximate $80,000,000. There is now outstanding against the State in the form of registered warrants some $30,000,000.

The 1935 session of the California Legislature was faced rvith the problem of trying to balance the state budget. The unbalanced condition of the budget was due to: (1). the decrease in state revenues resulting from the depression; (2) the loss of approximately $60,000,000 per biennium in taxes as the result of the adoption of the Riley-Stewart constitutional amendment; and (3) the large proportion of. the state budget which is fixed by statute or by provision of the Constitution.

In an attempt to balance the budget, the Legislature levied a state income tax at graduated rates of from 1 to 15 per cent; increased the sales tax to 3 per cent, exempting food stuffs; passed a use tax act of 3 per ,cent; increased the franchise tax from 2 to 4 per cent on in,corporated corporations and from 6 to 8 per cent on banks; in,creased the state inheritance tax; levied a liquor tax of 80c per gallon; and took away from' the 'counties the right to tax motor vehicles as personal property, substituting a state tax of $1.75 per cent of the actual market value of the motor vehicle. Twenty-five per cent of the collections from the state motor vehicle tax are to be returned to the cities,12ft per cent to the counties, and the remainder will be retained by the State. This program of increased taxation, however, did not balance the budget. The 1935 session of the Legislature made practically no e,conomies in the ,case of state government.

Under the provisions of the Riley-Stewart constitutional amendment, there was this year returned to the several counties and their political subdivisions some $900,000,m0 of assessed valuation. Had this assessed valuation been used by the local governments for the purpose for which it was intended-namelv. the further relief for the common property taxpayers in these political subdivisions-averaging the State as a rvhole, the common property tax bill would have been reduced 20 per cent. Instead of this reduction of. 20 per ,cent, taking the State as a whole, there was an actual in,crease of 7 per cent over last year's tax bills.

Today in California there are 90 different taxes being levied by the federal, state, and local governments; these taxes range all the way from the property tax to the fedl eral tax on vegetable oils. The burden of taxation is a drag on recovery and is becoming a 'charge which is retarding our economic advancement. The time has come for sound thinking and reasoning on our problems of taxation. There is a remedy and that remedy is to be found in requiring political subdivisions to live within their incomes.

Before we can achieve permanent tax control and eventual redu,ction of taxes, a constru,ctive program such as the following must be placed in operation: l. There must be a coordinaton of federal and state taxing systems. The federal and state governments are now tapping the same tax base as sources of revenue in more than 800 instances. Some of these are insignificant but at least seven of them are being relied upon is major sources.of revenue by both the state and federal governments. These seven are: the personal income tax, the corporation income tax, the inheritance and estate taxes, taxes on admissions to amusements, tobacco tax, alcoholic beverage tax, and the gasoline tax. As long as the people tolerate this independent and competitive race between the federal and state governments in taxation, there is no possi- bility of exercising effective control over the burden of taxation.

This situation can be corrected through the assignment of certain types of taxes exclusively to the federal government and of certain other types of taxes exclusively to the states, and by centralization in the hands of the federal government of that type of tax whi'ch can be best administered by the federal government and part of the amount rebated back to the states.

2. California is sadly in need of a state tax commission manned by individuals who know tax law and tax administration, a commission which will be removed from the mire of politics and be invested with all necessary power to supervise and control the budgets of the political subdivisions within the State and administer the tax laws of the State of California. Until we have such a commission we cannot hope to a'chieve much in the rvay of better tax administration.

3. An efficient and uniform system of governmental accounting and budgetary practice is needed in this State. The lack of uniform reports on the part of the political subdivisions makes it practically impossible to compare .costs of government between the political subdivisions. The adoption of a statewide uniform system of reporting, accounting, and budgeting will do much to enable the citizens of each community to control the expenditures of government.

4. There are too many governtnental units in this country and in this State. California has some 6,000 governmental units. We are now operating under 58 counties; at one time rve only had 27. With the modern means oi transportation it should be possible to operate the count)' governmental afiairs of this State with a number of counties less than 58. We have 3,600 school divisions which should be reduced considerably in number. The net result of bringing about this reduction in the number of s'chool districts rvould be a better educational system and a more efficient one for the State of California. We have hundreds of special districts, all of which exact their pennies of tribute from the people. The reduction in number and the simplification of these governmental units will result not only in savings to the taxpayers but in more efli,cient governmental administration and service.

.1.5. We must eliminate the rnany overlapping and dupli- cating functions that now exist betrveen state and lo,cal gov- ernments. We have duplicating inspections, duplicating investigations, overlapping services, all of rvhich add to the tax bill without increasing the efficiency of the service and in many cases actually interfere with the proper functioning of political subdivisions. Centralization of administration in such functions as health and rural policing is an example of where money can be saved and a more effrcient service rendered to the people of the State.

6. The people must take an interest in the fiscal affairs of government. The complexity and intricacy of the fiscal affairs of government should not cause the people to feel hopeless, but should result in a demand on the part of the people that the fis,cal officials of government make these fiscal matters understandable to them. An articulate and responsive public opinion must be built up to stop this orgy of public expenditure which is bogging down the economic well-being of the tNation.

No nation on the face of .this earth has continued to live which followed policies of government which 'confiscated wealth, destroyed the taxpaver, and annihilated the thrift of the people. Turn the pages of history of this civilization and see for yourself how every nation which has followed these poli'cies of government has crumbled into dust. Need we mention the story of the Egyptians, the story of the Phoenicians, the story of the Persian Empire, the stories of Athens and Sparta, the story of the grandeur that was once Rome, to see how these policies of government destroyed thrift and destroyed rvealth, and then destroyed the nation itself.

A government is no better than the people which it represents. The goodness of a government is measured by the amount of interest the leading citizens of a community or nation are willing to take in studying the problems that face their government.

We act too much like the trees in the parable of Jothair in the Book of Judges of the Bible:

The trees went forth on a time to anoint a king over them; and they said unto the olive tree, "Reign thou over us."

But the olive tree said urrto them, "Should I leave my fatness, wherewith by me they honor God and man, and go to be promoted over the trees ?"

And the trees said to the fig tree, "Come thou, and reign over us."

But the fig tree said unto them, "Should I forsake my sweetness and my good fruit, to go to be promoted over . the trees?"

Then said the trees unto the vine, "Come thou and reign over us."

And the vine said unto them, "Should I leave my vine, rvhich cheereth God and man, and go to be promoted over the trees ?"

Then said all the trees unto the bramble, "Come thou, and reign over us."

And the bramble said unto the trees, "If in truth ye anoint me king over you, then you come and put your trust in my shadow."

If we want ferver brambles and less "brambling" in government, the American citizen must live up to the responsibilities which the republican form of goi.ernment pLces upon him.

Council Meets In San Francisco

California Lumbermen's Council met at the Commercial Club, San Francisco, November 23. President George Ley presided, and there was a good attendance.