Federal Income Tax Itemization and Park Districts

Regardless of how you measure the figurative notion of citizen mobility between cities – individuals who would like to move, but are trapped in their current municipality for various internal and external reasons – the main problem is not the mobility of the voters, but instead the ability of the public sector to realize when a local government has failed. If this status were more clear, and local governments actually operated in a ‘municipal market,’ then other municipalities would ‘buy’ the failing municipality through merger or consolidation. Of course this comparison does not work as, unlike the private sector which seeks to buy up companies to gain advantage of differing sectors they have available to them, many municipalities do not need another police department, and to suggest so, especially internally, would be political or professional suicide.

Perhaps this type of regionalization could occur if states did not maintain strict laws that prevent annexations, mergers, and consolidations even if they are vehemently opposed by residents of failing municipalities. But this does not mean that consolidations are illogical as David Miller notes in The Regional Governing of Metropolitan America, saying, “In 1952, there were 16,778 municipalities in [the] United States. By 1997, that number had grown to 19,372 – a growth of 15.5 percent. Contrasting the growth of municipalities with that of school districts further emphasizes the limited role of municipal mergers and consolidations. In 1952 there were [67,355] (sic) school districts in [the] United States. By 1997, this number had been reduced to 13,726 (Miller, 2002, 124).” In this analysis, Miller misses the more interesting growth in the local government sector as demonstrated in the graph below:

Sources:  (U.S. Census Bureau, 2002, Tables 4&5) (U.S. Census Bureau, 2007)

While the number of municipal governments has grown sizably since 1952 to 2,685 new municipalities,  they do not compare to the growth of special purpose/district governments of 25,041 new governing bodies, three times the original 1952 amount!

What has caused this change?

The significant drop in total local governments after World War II occurred “when the proportion of the population who paid income taxes had grown dramatically, from about 5 percent when [in 1913] the [income] tax was enacted to nearly 75 percent in 1944 (Congressional Budget Office, 2008, 4),” which would likely correlate with increased attention to taxation for all levels of government. Perhaps it was at this point, when a sizable amount of people changed their focus to reducing other costs, such as the non-deducted state and local government taxes. More explicitly, the argument is that as more people take itemized deductions, the pressure to reduce the amount of local government decreases because the federal government subsidizes these expenditures, especially in the case of those under higher tax brackets. However when the standard deduction is predominantly taken, the pressure to reduce the amount of local governments increases because residents do not see their local services subsidized by the federal government. This could be an alternative explanation as to why poorer municipalities provide fewer services as their residents literally do not see the value of those services because they do not itemize.

If this were the case, political and financial pressure may have forced some local governments to merge or dissolve. As itemizing became more popular though, the political pressure on local governments has decreased, especially in more wealthy areas where itemization is more customary. This leads to more local governments (i.e. park districts) as itemizers realize increased local taxes also reduce their federal liability and increased their quality of local government service.

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~ by StateHate on December 7, 2009.

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