Essays in Honor of Dick Netzer
Studies in Fiscal Federalism and State–local Finance series
Edited by Amy Ellen Schwartz
Chapter 3: What a tangled web: local property, income and sales taxes
David L. Sjoquist, Sally Wallace and Barbara Edwards* INTRODUCTION Throughout his career, Dick Netzer has been an ardent proponent of the use of the property tax for local governments. The discussion in his classic book, Economics of the Property Tax (Netzer, 1966), of the general sales tax as an alternative revenue source for local governments makes it clear that he believes it is an inferior alternative. However, over the past three decades, local governments have diversiﬁed their tax structures, and as a consequence local sales and income taxes have become an important part of the tax structure for many cities and other local governments across the United States. These changes in revenue structure have likely come about for two principal reasons: pressures on the existing system of revenue in the face of increased expenditure demands, and pressures to reduce reliance on the property tax. Many individuals suggest that cities adopt sales and income taxes to ﬁnance higher levels of expenditures (Anderson, 1994). Over the past several decades, reductions in federal funds, increases in federal and state mandates, and changes in the demand for public services have put increasing pressure on local governments to adjust old revenue sources and develop new, alternative forms of revenue. Large cities are a case in point: the demand for public services has increased as central cities have taken on more of the urban poor, suﬀered from increased crime (at least until recently) and sought to repair their infrastructure. The existence of limits, either...
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