2. The fact that not the Federal Government, but the State and local governments, have so far carried the brunt of the big increase in governmental costs caused by the increase in population and in cost of living in recent years; and 3. The ridiculous fallacies in national thinking that are perpetrated as the States are pitted against each other in meaningless comparisons of tax collections and disbursements of aid.

ECONOMIC GROWTH DEPENDS ON EDUCATION

First: The growth of the American economic system depends on public education.

The thought is not new. However, it has recently received new and startling documentation from the work of Dr. Theodore W. Schultz of the University of Chicago Graduate School of Economics, among others. (See "The Emerging Economic Scene and Its Relation to High School Education," in "High School in a New Era," edited by Francis S. Chase and Harold A. Anderson, published by the University of Chicago Press, 1958.)

Dr. Schultz points out that:

"Only about one-half of the economic growth of this country has been coming from increases in the labor force and in the stock of conventional capital. The other half must be explained mainly through improvements in health and through education.

"One authority points out that, since 1870, net national product has increased in this country at the rate of 3% percent per year. The increase due to labor and capital combined has been 1.7 percent per year. This leaves 1.8 percent per year, or slightly more than one-half the increase, to be explained in other ways. "Better health and much of our education may be represented as improvements in the human agent *** Young men and women as they enter the labor force differ substantially in quality depending on whether they have had a high school or only an elementary school education.

"In 1956, 28 percent of the gross capital formation of the country is explained by the investments in the education of those who attended high school and college.

"The difference between the amount of money spent for education in the United States and in Great Britain helps to explain why the economy of Great Britain has been falling behind ours in economic growth and in output per man-hour. "Many Western European countries have done as well as we have in providing elementary education for all children and as well or better in educating those few highly competent students who get into the universities; however, we have done much more in educating the rank and file students in high school age group and have served more students in the college and university age group. "Part of the result of education is to make people less tradition bound, less tied to particular occupations and more mobile in taking new jobs and in migrating to where jobs are. Education has brought to the surface a wide variety of talents that would otherwise have remained undiscovered and dormant."

It is in connection with this last point that we are not making the most of the possibilities open to us. Also, we are not training students today to do the most difficult intellectual work of which they are capable. The discrimination against some human resources, especially Negroes, is also economically expensive, and destructive of future opportunities for maximum economic growth.

The documentation that Dr. Schultz and others working in this field are supplying only confirms what most of us have known about the importance of free public education in promoting the growth and development of the American economy. It is unforutnate that many of those who have the future of the economy in their keeping are so insensitive to the importance of education and of the need for keeping our education facilities up-to-date. However, Congress may share this insensitivity only at great peril to the future of our economic development.

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BURDEN ON STATE AND LOCAL GOVERNMENTS HAS GROWN RAPIDLY

Second, as to the myth of State and local economic laxness.

The cartoonist, Herblock, has, with his customary genius, put the matter in a nutshell. I have taken the liberty of including in my statement a copy of a recent cartoon which helps to put the case directly and well.

Not having Herblock's genius, however, I have had to have recourse to the statistics to show what has happened.

The fact is that the share of the tax burden which falls on the State and local governments has increased in recent years. In 1946, the Federal share of all taxes collected was 77 percent; in 1957, it had dropped to 67 percent. Conversely, the burden on State and local taxes had increased in this period from 23 percent to 33 percent of the total.

I have attached to my statement a table which shows that, while Federal expenditures for purposes other than war have increased over the years, they have not increased as fast as have population and prices. Thus, the amount spent for nondefense services out of Federal taxes, per capita in constant dollars, has actually decreased, as Federal attention has turned more and more to the costs of war, both hot and cold.

However, the increase in expenditures by State and local governments has been greater than the increase in population and prices. The result is an increase in the share of ordinary expenditures from State and local taxes, in whatever terms these expenditures are measured.

One way of saying it is this: in 1940, 58 percent of the cost of all nondefense services, per capita, was met out of State and local taxes; in 1957, the share carried by these taxes had risen to 75 percent of the total.

As far as public education is concerned, 96 percent of the costs are paid by the State and local governments, while only 4 percent comes from Federal funds. It seems quite clear that the increase in Federal expenditures has basically not been to meet costs that the State and local governments ought to be meeting, bu for other purposes-mainly war. The burden on State and local governments, however, has increased tremendously, and what is proposed in H.R. 22 is that the Federal Government assume a somewhat larger share of the total burden, still leaving State and local governments to struggle with by far the major part of the job.

"You've Got to Pull More of the Load"

Change in share of nondefense sedvices paid for by State and local taxes, 1940 and 1957

1 President's budget message. Budget expenditures for major national security, international aid, veterans' benefits, and interest on the debt are excluded.

2 Reports of the U.S. Department of Commerce, Bureau of the Census: Historical Statistics on State and Local Government Finances 1902-53, table 4, p. 22; Summary of Governmental Finances in 1957, table 21, p. 35.

3 Direct budget expenditures less: Revenue from Federal Government; expenditures from insurance trust funds; utility and liquor store expenditures.

4 Computed from Census Bureau data.

Source: Prepared by UAW Washington office.

The shift of government costs from the Fedoral Government to the States and cities has, of course, produced the debt situation that Senator Murray, among others, has described so well. While State and local government incomes increased 119 percent from 1947 through 1957, their bonded debt increased by 182 percent. In the same period, Federal revenues increased 81 percent while the debt increased only 7.2 percent.

FEDERAL TAXES PROTECT VITAL BUYING POWER

Third, the tempest over what States pay in taxes, compared with the aid eceived.

The argument is made against Federal aid for schools that certain Statesthe so-called rich ones-will get back in Federal aid from the Government less than they will pay in Federal taxes for this purpose.

This argument has no merit. It is based on faulty economics and an even more faulty approach to American life. As far as we are concerned, the children of America are the children of all America, and the wealth of America is the wealth of all America. We support Federal aid for education because it is a way of using the wealth of all America for the education of the children of all America.

In the first place, there is a misunderstanding due to the failure to understand how the Internal Revenue Service publishes its figures on tax collections. Those who deal with these figures generally assume that the money collected by each of the Internal Revenue Service tax collectors is paid by residents of the particular State in which the IRS office is located. This is just not true. An obvious illustration of what is involved is the fact that the people of the District of Columbia pay their taxes to the collector at Baltimore, Md., and thus the IRS figures show no Federal tax collections at all for Washington.

A much more complicated problem in determining who is taxed for Federal Government costs is illustrated by the alcohol taxes reported as collected in Wisconsin, Indiana, and Kentucky, the tobacco taxes reported as collected in North Carolina, Kentucky, and Virginia, and the automobile taxes reported from Ohio and Michigan.

While only half the money collected in Michigan and Kentucky is paid by the people of those States, the residents of Arizona may have paid twice as much as is reported from that State and the figures for West Virginia and Alabama may report only two-thirds of the money actually paid by the people of those two States.

Actually, however, States do not pay taxes to the Federal Government. Individual people pay these taxes, whether the State or the Federal Government collects them. To us in the labor movement, it is important to know how these people and especially the low- and middle-income taxpayers of the Nationfare under the various State systems, as compared with the Federal tax system. As is well known, low-income families pay a far greater share of State taxes than they do of Federal taxes, and than they ought to have to pay under any tax system. The fact that the State governments depend so heavily on sales and similar taxes while the Federal Government makes use of personal and corporate income taxes means that low-income families on an average pay twice as much in State and local taxes as in Federal taxes for each billion dollars of tax per billion dollars of tax collections under these two systems.

According to data made available to Congress in November 1955, by Dr. Richard Musgrave, this is the way it worked out at that time:

How much money would have been paid by each income group for $1 billion collected in taxes-Federal taxes, compared with State and local taxes, 1954

FEDERAL PROGRAMS ARE BASED ON ABILITY TO PAY

Let us put these facts together as they apply to one of the major States, one which would put more than it would take, as the popular phrase is, under a Federal-aid program for each billion dollars involved in that program. The State of Michigan provides an instructive example.

A calculation of Michigan's Federal tax collections shows that, for each billion dollars collected in Federal taxes, the people of Michigan would pay approximately $48 million at the time our study was made.

For each billion dollars of Federal aid for schools that would be distributed on a per child basis, Michigan would have received approximately $43 million. If the State of Michigan did not receive this $43 million in Federal aid, it might attempt to raise that amount by State tax collections. Let us assume that the amount would, indeed, be raised by the existing State tax system.

We can now compare the way the tax burden would fall on Michigan residents under these two different approaches to raising the $43 million which Michigan might receive the Federal aid approach or raising the money itself.