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TRADITIONAL STATEHOOD REVENUE SOURCES

From • financial perspective, the state of New Columbia can

expect, so is the case with other states of the Union, to derive

incone fron (1) various federal grants and loan, and (2) the power

of taxation.

Taxation Authority

As shown in the budget tablos of the prior section, the

District of Columbio already derives substantiel incone fron nost

traditional sources, us should be the case for the state of New

Coluabia.

In fact, as the federıl payment has declined as a

proportion of General Fund Revenues, the residents of the District

of Columbia have borne tax burdens substantially higher than the

average for residents of the nation as a whole,

Rocont reports by the Bureau of the Consus show that the

citizens of the District contribute to finance their local

governnent, on a per capita basis, nearly 70% above average.

The

average United States citizen pays $1,356 in annual state and local

governaent taxes:

District residents

pay $2,300.

District

of Columbia individuals and businesses pay 123% nore in incone

taxe. than in the average for the country as a whole.

For the

District of Columbia,

incone and franchise taxes grow 46% in the

These taxes grew 13% fron 1985 to 1986.

period 1982 -1986.

Such

growth cannot fossibly be sustained, particularly in the prosent

environnant of the expectation of lower taxei.

It should not be

surprising that the tax rate in the District nay ultinatel erode

the growth of the tax base.

The previous section on the cost of the federal presence

discussed the prohibition upon taxation of nonresident incone and

amply denonstrated the need for such a tax to help nitigate the

expenses of this urban centar.

Even if the state of Now Columbia

realized only one-half of the presently foregone taxes on

nonrusidont incone, the amount is estimated to equal as much as

$353 million.

Incrossed revenues of this nagnitude could allow the

state of New Columbia to indeed participate in the production of u

model center for the nation', capital.

For the nost part, the District is subject to the same taxation

powers and linitations as other states, except for the current

prohibition on the taxation of nonresident incone.

This means

that the state of New Columbia should not expect to levy taxes upon

traditionally tax-exenpt property, but should utilize the foderal

paynent nechanion and a good state bond rating as warranted.

Federal Grants and Loans

Currently, the District of Columbia is oligible to participato

in federal grant and loan prograns.

Where the prograns are

intended for state participation, the District is treated as state. already bears nany of these costs through its full scale

Whor. the progren. uro intondod for municipal participation, the district to trusted us • aunicipality. Wher. the progrens eri open

to states and aunicipalities, the District is trusted us •

aunicipality.

Since, under the state of New Coluabia, the local

governnent will continue to have both state and local

responsibilities, there is no financial reason why the statehood

status should affect the participation of the area'. residents.

Econonically, it is appropriate for these citizens, as other

citizens elsewhere, to fully benefit from the federıl governnent by

which they are fully taxed.

As such, statehood should not

negatively lapect the ability of the governaent to participate in

federal grant and loan prograns.

Costs of Statehood

Cloarly, the costs of statehood will be proportionat. to any

added responsibilities of statehood.

At present, the District

legislative and executive systens.

The major addition to these

systens will be judicial in nature.

This nay require an attorney

general's office, a prosecutor's office, judges, and a prison

systen.

These costs will depend very much upon the divisions

between

federal

and local responsibilities.

FOOTNOTES

1.

Indice: A Statistical Index te Dintrict of Columbi Service Office of Policy and Progran Evaluation, the District of Columbia Governnont, July 1986, page 82.

2. The Federal Prent to the District of Coluni 1790-1980, A Reference Conpendiun of Docunents, Studiu, Roports, and Proposals, Staff Study for the Connittee on the District of Columbia, House of Representatives, Ninety-sixth Congress, First Session, August 14, 1979.

3. Barber. Moffet, "Can the District of Columbie Justify Continued Receipt of the Federal Paynent if if Becane • State," Congressional Ronarch Service, 1984, page. CRS-2 - CRS-8.

4.

Ibid, U.S. Advisory Connission on Intergovernnental Relations, Pregnatis Federello: The Rowlannent of Functional Responsibility, M-105, 1976.

S. Ibid, U.S. Advisory Connis.ion on Intergovernnental Relations, Poynent,-in-Lieu of taxon Roal Federal Property, A-90, 1981

6. Know the Distrist of Colunbia, The District of Columbia League of Wonen Voters, 1980.

7. "Report of the Connission on the Organization of the Governnent of the District of Columbia, The Federal Poynent to the District of Coluabi. 1790-1980 p338.

8. According to Barbara Maffoi, "Can the District of Columbia Justify Continued Receipt of the Federal Paynent if if Becane • State," Congressional Research Service December 20, 1984, the Federal paynent was authorized at a loval of $386.0 nillion by the Hong Rule Act as aended. "P.L. 93-193, Title V, is inended by P.L, 98-65 (97 Stat 367). P.L. 98-65 increased the Federal paynent authorization from a level of $336.6 million in FY 1982 to $361.0 million in FY 1983 and $386.0 nillion in FY 1984 and thereafter. Fron FY 1975 to FY 1980, appropriations fell short of the authorization level. Fron FY 1981 to FY 1985, however, the authorization level has been raised annually, and the authorized arount has been fully appropriated."

9. The Federal Payment to the District of Coluabia 1790-1980, p.476.

10. For example, th. District of Columbia Appropriation Bill, 1987 Report (To Acconpany H.R. 5175) prohibits the District governnent

tron closing Fire Engine Company No.3 without the prior approval of the Connittee on Appropriations. The Raport, also, requires the District governaant to study and report back to the connittee on certain parking problens. These ero costly natter, for the District.

11. Congrowional Rosearch Service, "Tax Quostions Rolating to Possible D.C. Statehood," Anerican Law Division, October 18, 1982, page CRS-4. "In cortain instancos Congress had provided for oxonptions from State taxation to pronot. Federal governnental interests. In sone case, those exonptions extend to rul property taxes

The Suprone Court has recognized the authority of Congress to exenpt instrunentalities of the Federal government fron property taxation by the States (gee el. City of Cleveland v. United States, 323 U.S. 327 (1945)) and has applied • Federal statute naking compensation and insurance allowancos for vetorino "exempt fron all taxation" to void • local tax. Laurense v. Show, 300 U.S. 245 (1937). Exemptions of this nature presumably could not be reached by any State."

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14. Lillian Rynarowicz, "What Would Happen to GNP in the District of columbia if the Federal Government Cut or Ceased Funding," Congressional research Service, June 1986.

15.

The expenditure itens noted are the Senate'. appropriations in the period 1982-1984. The actual nunbers for 1985 and 1986 were readily obtained from Indices.. 1986.

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