Taxing State and Local Government Production: Economic and Legal Perspectives

Moshe Schuldinger and Dennis Zimmerman

National Tax Journal, 1999, vol. 52, issue 3, 373-84

Abstract: The Internal Revenue Service has held that the section 115 exclusion from taxation of the gross income state and local governments earn from public utilities or from the exercise of any "essential governmental function" applies to any income that accrues to them. This provides an incentive for government to produce public goods and services rather than contracting with private firms, although the incomplete contract literature suggests economic welfare might be enhanced by private production. Examination of the Constitutional limitations on taxation of states and the difficulties of applying the essential governmental function test suggests any tax Congress levies must be subject to limitations implicit in the Tenth and Eleventh Amendments that require specificity. A starting point for such a tax structure might be the unrelated business income tax currently levied on the activities of tax-exempt organizations. Congress might focus on those activities that the incomplete contract literature suggests would be better provided by private firms and that are financed with charges and fees.

Date: 1999
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1086/NTJ41789729 (application/pdf)
https://doi.org/10.1086/NTJ41789729 (text/html)
Access is restricted to subscribers and members of the National Tax Association.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:52:y:1999:i:3:p:373-84

Access Statistics for this article

National Tax Journal is currently edited by Stacy Dickert-Conlin and William M. Gentry

More articles in National Tax Journal from National Tax Association, National Tax Journal Contact information at EDIRC.
Bibliographic data for series maintained by The University of Chicago Press ().