sumption taxes as high as might be required to carry out the wishes of their voters. In contrast, the Federal tax system permits full expression of voters' wishes without the hobbling fear of interstate competition.

As I pointed out a few moments ago, the Federal Government has at its command vastly superior administrative resources, division of labor and the like. No State can match the inherent and adduced resources of the Internal Revenue Service. In other words, Federal collection of taxes, coupled with Federal aid to States, is not a case of paying the additional freight of a round trip to Washington. The freight of administrative costs is, in fact, far less for an integrated nationwide agency like the Internal Revenue Service than it is where the tax collection process is divided among over 100,000 State and local units.

To be sure and this addresses itself, Congressman Frelinghuysen, to the point you were raising before-citizens are willing to pay a considerable premium for independent taxation at the State and local levels as a cost of preserving local independence and vitality. But where this cost can be reduced without reducing the stature of State and local government-and especially where the Federal Government is getting the benefit of the existing State-local administrative mechanism in education to fulfill its own functions-the net public interest would seem to be richly served.

The Federal Government can more readily, more equitably and more economically convert our vast national economic capacity into tax dollars than can the State and local governments. Couple this with its direct interest in elementary and secondary education as an instrument for carrying out assigned Federal functions, and the positive case for Federal financial support becomes inescapable.

Mr. FRELINGHUYSEN. But, Dr. Heller, my whole point is the problem of your phrase "without reducing the stature of State and local government."

If the Federal program can be designed in such a way as to underline the basic fiscal responsibility of the State and local governments, I am going to be satisfied. I have been a proponent of Federal action, but I still think it has to be very carefully thought through so we are not so charmed by the ease with which we can collect the money and the various hobbles of operating through the State and local governments that we weaken, what has been a pretty good system as far as I am concerned, and will result in a weakening of the veto power of the community to do what it feels is adequate in building its schools and paying its teachers.

Mr. HELLER. I want to return now to this question that has come up several times, and that is the fiscal position of State and local governments.

In spite of the foregoing arguments, it is often alleged that State and local governments are in a strong fiscal position to meet the rapidly expanding needs in the field of education. Indeed, it is pointed out that very substantial advances have been made in the levels of teachers' salaries, in the building of schools, and in the aggregate provision for education, without the benefit of Federal aid.

This assertion, though true, not only ignores the Federal Government's growing responsibility for supporting schools to achieve na

tional ends, but also fails to take account of the hard fiscal facts of life with which State and local governments are confronted today:

1. They have been under relentless pressures in the postwar period, pressures which have multiplied State-local spending and gross debt almost fourfold and State-local revenues approximately threefold from 1946 to 1958, as table 3 on the next page shows.

2. State-local spending, taxes, and debt have risen relatively much faster than Federal during this period in spite of Korea and the cold war. Federal expenditures and taxes roughly doubled while Federal debt rose only 7 percent in the period ending 1958.

3. Unabated upward pressure of spending during the recent recession, combined with flattening out or actual decreases of revenue, have put many State and local governments in severe financial straits. Some for example, Massachusetts, Michigan, and New York—are incurring deficits this year, and a recent survey by Newsweek magazine indicated that 36 of the 49 States would have to ask their 1959 legislatures to increase tax rates.

If you will direct your attention for just a moment to table 3, I think you will find the figures really quite startling. (Table 3 follows:)

TABLE 3.-Postwar growth of State-local and Federal expenditures, revenues, and debt (selected fiscal years 1946 to current)

1 Federal aids are included in both Federal and State-local expenditures. 2 Excludes expenditures of publicly owned utilities and liquor stores.

These figures are more than the conventional or administrative budget figures in that they include social security, highway, and other trust fund receipts and payments to the public.

4 Excludes Federal aids; includes taxes, charges and miscellaneous, insurance trust revenue, and excess of receipts over expenditures of publicly owned utilities and liquor stores.

The 1947 State-local figures are not available while 1946 Federal figures are not representative because of the impact of World War II.

• Estimated.

Sources: State-local data for 1946-52 from U.S. Department of Commerce, Bureau of the Census, "Historical Statistics on State and Local Government Finances, 1902-1953," table 1, pp. 17, 18, and for 1954-57 from "Summary of Governmental Finances," series G-GF 56 and G-GF 1957. Federal data from U.S. Department of Commerce, Bureau of the Census, "Statistical Abstract of the United States: 1958," table 458, p. 368, and Bureau of the Budget, "1959 Federal Budget, Midyear Review," pp. 19 and 42.

Mr. HELLER. The "State-local" column under "Expenditures" shows a rise from $12 billion to $47 billion.

Even granting that these are unchecked figures, for relative purposes they are quite adequate. As we run our eye down these columns to the index of postwar growth, we find that there has been an increase of 282 percent in State-local expenditures. In the corresponding period the Federal cash expenditures have risen by 160 percent for an index of 260.

As far as revenues are concerned, the pattern is repeated. At the State-local level it is somewhat over 200 percent increase; at the Federal level, about an 85 percent increase.

In gross debt we have the most striking picture of all. Statelocal debt has risen from $16 billion in 1946. I should say it is above $60 billion right now, almost a fourfold increase, while Federal debt has risen in the corresponding period about 10 percent. That is carrying it into 1959.

Mr. FRELINGHUYSEN. What conclusion should we draw from that? The fact that the State debts have been increased and their expenditures have been increased and their revenues have been increased is surely not an argument against further increase in revenues, further increase in expenditures, and further increase in State debts. Or certainly the fact that the Federal debt and expenditures and revenues have increased more than local is not an argument for loading it on to the Federal debt. If we have to do it by going into debt, surely it is just as good and perhaps even better to do it at the State level than at the Federal level. Or is that not true?

Mr. HELLER. I think that is at least open to question and open to limitations. That is to say that the State and local governments should be called upon to make every effort that they can legitimately make at the State and local levels to provide adequate support for their services.

I would like to introduce into this discussion some evidence that these efforts are being made. This is by no means an argument that the States should no do more. Do not misunderstand me, they should do more, but the pressure they have been under, which has been compounded by the recession, is just tremendous.

For example, in terms of current deficits for the current fiscal year, 1959, California is running a $68 million deficit; Michigan is running a $110 million deficit, Texas is running a $65 million deficit.

When we turn from that to the Governors' budget messages calling for tax increases for the coming fiscal year, or biennium, we have many figures, although a 49-State survey is not yet available.

I am sure you have all seen the recent headlines in the New York Times on Governor Rockefeller's program. His budget for next year is over $2 billion, with a $400 million deficit. He proposes to close $277 million of the gap by income tax, inheritance tax, excise tax, and cigarette tax increases.

Michigan has a forthcoming requirement for new taxes of $140 million for the coming year.

Mr. THOMPSON. Michigan is in such a critical state now that they are unable to pay the people at the State university, to operate it properly. Theirs is probably the most critical in the Nation.

Mr. HELLER. Yes; it is.

Mr. FRELINGHUYSEN. That is not to say, however, that the Federal Government should bail out the States.

Mr. HELLER. But really, my point here is that they are doing their utmost to bail themselves out.

Mr. FRELINGHUYSEN. If they do not raise taxes to cover their expenditures, they are not doing their utmost. In other words, I think Governor Rockefeller at least has the right idea. He is trying to balance the budget at the State level. But I do not have too much sympathyand I know nothing about it, so I should not say this-with a State like Michigan that allows itself to get into such financial difficulties. Again it is easy enough for us to talk, because we cannot solve our own problems here, either. But I would assume that we have got to, at some point-unless we are going to pass it all off to the next generation or two generations from now-balance revenues and expenditures. An appropriate place to do that is at the State level.

Mr. THOMPSON. It might be remembered, that in the case of Michigan, in the city of Detroit alone, thanks to the recession, there are 200,000-some unemployed and 67,000 families on surplus food relief.

I for one think that the Federal Government should do something to bail them out in the form of the depressed areas legislation, and I think that it is somewhat tragic that at least part of the Full Employment Act were not invoked during the recession.

It really is not the State's fault. Unhappily, many States have these relatively regressive excise taxes. People out of work do not smoke as many cigarettes, drink as much beer, or bet on as many horses. They therefore find a terrifically critical situation; they find themselves in this terrifically critical situation.

Mr. HELLER. As a matter of fact, the problem that is involved in the recession, the impact on State-local revenues, was underscored in Governor Freeman's budget message with a chart showing the relationship between the growth of State-local purchases of goods and services from the first quarter of 1957 to the third quarter of 1958, when it rose from an index of 100, based at the first quarter, to 111. In other words, the expenditures rose by 11 percent.

The lower line shows the growth of gross national products which is essentially the tax base of all governments, if you will, and it first dropped and then has just recovered toward the end of 1958 to its prerecession level.

This has opened up a great big gap between the rising responsibilities, expenditure responsibilities, of State-local governments, and a tapered-off set of revenues.

I do not really feel that this can be called poor fiscal planning, because, if you look at the forecasts of business activity by Federal officials in mid-1957, you would find no indication of the recession of 1958 on the part of the official economic forecasters, on whom the States had to rely for their estimates of revenue increases.

As a matter of fact, as late as September of 1957, Federal Reserve Boards were still taking restrictive action in the form of tightening credits, to fight inflation.

Mr. FRELINGHUYSEN. I will certainly admit that the State governments have a lot of problems, and they are subject to factors beyond their control, so far as their revenues are concerned. It might be that we should say the States should not any longer have any responsi

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bilities in the field of education because they have got enough to do, anyway, and we will take them all on, but that is an entirely different problem from the one we have been considering, and I do not think you are really raising this point, anyway.

Mr. HELLER. No, indeed, I am not.

Then I do want to go on to say that in Michigan a very bold and courageous revenue program has been proposed to close this gap. A 2- to 6-percent individual income tax and a 5-percent corporate income tax have been proposed by Governor Williams.

In Minnesota, I can speak with painful awareness of what is being proposed: a 30-percent increase in individual income tax, an increase in the corporate income tax, an increase even in the iron-ore tax, and in cigarette taxes, inheritance taxes, and gift taxes.

Strangely enough, Governor Freeman's program has a very close correspondence in its basic approach to Governor Rockefeller's program. I think they are both bold, courageous, and responsible programs. The States are not ducking their responsibilities.

Mr. BRADEMAS. Except in Indiana, the Governor says, "I will not accept the responsibility for any further tax increases.

Mr. HELLER. Yes; there are exceptions to all generalizations, Mr. Brademas. I accept this evidence.

The Pennsylvania Governor, Governor Lawrence, has said he needs $400 million of new taxes. I assume that is for a biennium.

I noticed that Governor Meyner did not have to call for new taxes, but that is partly because he had new taxes last year, the last legislative session. I think the same thing is true in Maryland. It has increased its sales and income taxes by 50 percent in the last couple of years.

California has a $250 million tax program; Ohio, $50 million; Washington, $50 million; Florida, $40 million; and Massachusetts has a very grave problem.

The legislatures of the few States I have mentioned are being confronted with requests for a billion and a half dollars of new taxes.

When you add in the States that are not covered in the available information, I should say that at least $2 billion of new taxes will be requested by the 49 State legislatures this year.

Coupling that with the property tax increases, I believe it is safe to predict that this will be the greatest single year of tax rate increases at the State and local level in history, in absolute terms.

Perhaps during the great depression, in relative terms, you might have found a year that would exceed it, but in absolute terms, I think it will be the greatest year in history.

Mr. FRELINGHUYSEN. I hope you are not also predicting a raid on the U.S. Treasury, because of these problems.

Mr. HELLER. Åll I am saying, Mr. Congressman is that this reflects the tremendous pressures on the State and local units. It reflects also an attempt on their part, as best they can, to meet these pressures. In other words, they are not shirking their duties, but the pressures are there.

We can think of the chief among these pressures as "the four P's." The explosive postwar resurgence of State-local government is primarily a response to the fourfold pressures of population, prosperity, public works backlog, and price inflation.