Allocating the Federal Tax Burden Among the States
Research Aid No. 3
For reasons set out in this study, Federal tax collections by state as reported by the Internal Revenue Service do not reflect the distribution of the burden of these taxes. For example, tobacco taxes are largely collected in North Carolina, Kentucky and Virginia, but the burden of these taxes presumably falls on people in every state according to their consumption of tobacco. However, the burden of Federal taxes can be allocated among the states according to various economic series that reflect the distribution of the burden of particular taxes.
For many years Tax Foundation has annually published an allocation of the Federal tax burden by state. These allocations have been widely used by researchers, editors and others, particularly for comparing the total of Federal grants-in-aid to states with the allocated tax cost by state of these grant programs.
An example of this application is contained in Table 6. Other organizations have used allocation bases which differ in part from those used by Tax Foundation. The resulting differences in allocation estimates give rise to questions about the several methods and assumptions used in allocating the Federal tax burden by state. Moreover, the validity of these estimates for various purposes requires some analysis of the limitations of allocation estimates.
Methods of allocation are being improved as new statistical materials permit and as more of a consensus is reached on the conceptual and technical problems involved. It is not expected, however, that there will ever be complete unanimity in the selection of methods and bases for the allocation of the Federal tax burden by state.
This research aid discusses the uses and limitations of estimates of the Federal tax burden by state, explains some of the problems involved and the methods used in these allocations, and presents Tax Foundation’s allocation of the tax burden for 1957.
Tax Foundation, a non-profit organization, is engaged in research on government spending and taxation. Its purpose is to aid in the development of more efficient government at less cost to the taxpayer. It also serves as national information agency for organized taxpayer and research groups throughout the country.