Ken's Project Blog

February 2, 2011

What Would Reagan Do – Federal Subsidies

Filed under: Politics,Taxation — Ken @ 9:46 am

I just finished reading a really good book “The Reagan I Knew,” the last book published by William F. Buckley, Jr., and I noticed two passages (and one word!) that I wanted to share with you, and I will, each in their own posting this morning.

First up – Federal Subsidies to the states:

I’ve also illustrated how federal taxes could be shared using the “estate tax,” which, since 1926, has ear-marked a percentage for the states–no strings attached. I have even suggested that a percent of the federal income tax could be retained at the state level.

Source: February, 12, 1976 letter to Bill (page 68)

Unfortunately the nature of the book doesn’t provide for an in-depth consideration of the proposal mentioned, but as I imagine it, I suspect then-Gov. Reagan was proposing the gutting of reams and reams of complex funding models for a much simpler one that is simply based on states retaining a percentage of all income taxes collected for use as the state sees fit. A huge block grant, if you will.

But how, you may be asking, will poorer states be provided for? The answer is, as most good answers are, quite simple in fact. The answer is that the federal government could apportion the tax revenue on a per capita basis (see below)

Let the federal government continue as the principal tax collector. But let the federal government reduce its role to that exactly. Let it, having collected the taxes, remit them immediately to the states on a per capita basis, allowing the states to decide the social uses to which these taxes will be put. [emphasis added]

Source: Upstaging Reagan, January 24, 1976 (page 251)

If further subsidies are needed the “wealthier” states could choose to fund additional subsidies to “poorer” states.

Would it work? Who knows. Will it be tried? No way – I can’t see politicians in Washington, D.C. turning their positions into nothing more than tax collectors. They currently derive their power based on their ability to redirect taxpayers money to certain projects.

Sources: The Reagan I Knew


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