During this election season, the presidential candidates have offered up their federal tax reform plans which, depending on who you asked, would either provide much-needed relief for hard-working families or tax America’s middle class out of existence. But there’s an important aspect of the conversation that has been left out. Neither of the candidates have explained how their plans would really affect state and local governments.
Let me flesh this out. Under that hoary old concept of reciprocal immunity, no level of government should be taxing another government’s essential activities, like, say, financing of public infrastructure -- a critical issue in the decade to come and one the states have increasingly funded. The Congressional Budget Office tells us that public spending on transportation and water infrastructure totaled $416 billion in 2014. State and local governments provided $320 billion of it; the federal government, only $96 billion. According to the Boston Federal Reserve, annual capital spending by state and local governments over the last decade accounted for 12 percent of their total spending. Capital investments account for 14.4 percent of outstanding state and local long-term public debt.