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Chapter 2 ‘‘To Lay and Collect’’ Governors, Fiscal Federalism, and the Political Economy of Twentieth-Century Tax Policy Ajay K. Mehrotra and David Shreve 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. From the Progressive Era search for equitable and effective tax systems to the conservative property tax revolts of the 1970s, governors have been critical participants in a century-long debate over tax reform. 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. Broad structural forces limited their individual actions, and the American federal system of governance has forced states to compete with each other and the federal government in the making of tax policy. In addition, regional differences and changing historical conditions together have created a tremendous amount of diversity in state-level tax laws and policies. Forced to adapt to both varying economic and social circumstances and emerging fiscal responsibilities, states and their governors produced tax laws and policies that have varied greatly across time and place, with historical sectional differences often determining critical distinctions and patterns of development.1 Despite these variations and the restrictions on governors’ roles, 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 policymakers, often had to consider both equity and expediency in choosing tax vehicles. Increasingly, equity came to imply a tax system based on the principle of ability to pay, in which a moderately progressive income tax was often adopted as the ideal tax base. ‘‘To Lay and Collect’’ 49 Figure 2.1. State Tax Revenues, 1902–1992 0% 20% 40% 60% 80% 100% 1902 1913 1922 1927 1932 1942 1952 1962 1972 1982 1992 Other Auto Registration & Licenses Ind. & Corp Income Sales & Excise General Property Source: Historical Studies of the United States: Earliest Times to the Present, Susan B. Carter et al., eds., Millennial Edition (New York: Cambridge University Press, 2006), Table Ea348-384. Conversely, expediency reflected the ways in which governors and their states more typically responded to revenue shortfalls and fiscal crises by enacting solutions that proved more convenient than equitable. The relative visibility of the particular taxes they used often emerged as a principal factor in this process. Indeed, it was the relentless hostility toward property taxes that compelled governors to wrestle with the tension between equity and expediency quite early in the century. The dissatisfaction with the prevailing general property tax was a driving force for state and local tax reform. From the progressives’ assault on the antiquated taxation of personal property, to the dire demands during the 1930s and 1940s for alternatives to property taxes, to the post–World War II property tax revolts, the rising social and political antagonism toward property taxes looms large in any history of American taxation. The different ways in which governors engaged this enmity illustrates how they have negotiated between the demands for tax fairness and convenient revenue. One principal result has been that state governments’ reliance on property taxes has declined steadily throughout the century (Figure 2.1). Second, the tax policy decisions of states and governors were also limited and shaped by the institutional constraints of fiscal federalism. Forced to share power, resources, and fiscal responsibilities with localities and the national government, while competing with other states to provide public services and levy reasonable taxes, governors have had to navigate a complex matrix of taxing and spending options.2 Jealously guarding their political prerogatives, governors have often attempted to wrest power away from local legislators and county tax assessors while simultaneously resisting the national centralization of taxing powers. In 90.156.80] Project MUSE (2024-04-25 15:25 GMT) 50 Ajay K. Mehrotra and David Shreve the process, state executives have helped facilitate some fiscal reforms while frustrating others. In some cases, they have been able to harness changing historical conditions to further their visions of fiscal progress and consolidate their executive power; at other times they have been overwhelmed and debilitated by the emergence of broad structural forces that have fueled the centralization of national authority or the inflexibility of local governments.3 These dynamics in and of themselves, however...

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