'To Lay and Collect' Governors, Fiscal Federalism, and the Political Economy of Twentieth-Century Tax Policy
Ajay K. Mehrotra
Indiana University Maurer School of Law
affiliation not provided to SSRN
September 8, 2008
A LEGACY OF INNOVATION: GOVERNORS AND PUBLIC POLICY, Ethan G. Sribnick, ed., pp. 48-75, University of Pennsylvania Press, 2008
Throughout the twentieth century, state governments and the individuals who have led them have played a vital role in the development of American tax policy. As the political leaders of our country's "laboratories" of democracy, state executives have helped forge fiscal policies that have not only spread from state to state but have also been emulated by national lawmakers. At the same time, governors have been constrained in their ability to shape tax reform by broad structural forces and the American federal system of governance. This chapter contends that two broad trends help explain the tax policy choices made by state executives over the course of the twentieth century. First, governors, along with other state policy makers, often had to balance concerns for equity and expediency in choosing tax vehicles. Second, the tax policy decisions of states and governors were limited and shaped by the institutional constraints of fiscal federalism. These dynamics in and of themselves, however, do not explain the history of American governors and taxation. To understand the system of taxation that states developed over time, it is also necessary to consider these themes in the context of the broad historical forces and critical events that shaped the American past. The new demands placed on state government by urbanization and industrialization, the crisis of the Great Depression, the growth of an expansive federal government, the mobilization of World War II, the prosperity of the 1950s and 1960s, and the economic downturn of the 1970s all affected the calculus of equity and expediency, the dynamics of fiscal federalism, and the tax structures that ultimately emerged.
Keywords: tax policy, U.S. political history, tax history, economic history, fiscal federalism
JEL Classification: H25, K34, N42
Date posted: September 6, 2008
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