There is a very interesting dynamic that goes on in this country between the federal government and the state governments when it comes to tax and spending policy, and it doesn’t get enough attention, I think. The states often times are seen as doing their own thing, going off in their own direction, and certainly the states are all different. California for example is much different from Wyoming, and New York is much different from New Mexico, so you can understand why they might have their own policy choices and their own systems for dealing with what they decide is important to spend money on and how to raise that revenue. But we are all part of the same country, ultimately, and the federal government I think has a role in trying to foster cooperation both between the different levels of government, both the federal government and the state government, and among the state governments—bringing the state governments together to work on problems together. And I think a frustration that I hear often with people who have to deal with a lot of different state systems is why do they all have to be so different. I don’t know that difference is a problem per se, but we need to make it simpler if we can for people. It helps compliance if you make things simpler. It actually allows people to comply more easily, which ultimately is good for everybody. But at the federal level, I think one interesting issue is spending on infrastructure, and we’ve seen both at the state level and the federal level that investments in infrastructure have gone down, and that’s a real problem.
Ultimately, you can’t just stop spending on investing in infrastructure and things like roads and bridges and airports without having an effect on the economy long term, but we have a lot of projects that no one state can solve. Even if they had the resources, these are projects that typically cross state lines, and we need both state-to-state cooperation and leadership from the federal government saying we are going to prioritize these projects, we are going to assist in funding these projects, and we are going to set some goals in terms of providing leadership to where we want to invest this money so that states know that they’re not in it alone, and ultimately, I think that sort of creates potentially an environment for cooperation on other issues, tax issues included: How do we fund these projects, where does the money come from, who pays for it? These are always going to be issues in a government like ours where we have the split between the states and then also the split between the levels of government; who’s going to fund these projects, and it’s important also for the states that the federal government remembers that their tax systems, especially their income tax systems, are tied closely to the federal governments, their laws. And to the extent that the federal government changes those laws, does anything to those laws, it’s going to have an effect on the states inevitably.
In the Reagan era, you had a broadening of the base and a lowering of the tax rates at the federal level. That broadening of the base, of course, potentially brought in more money for the states, but politicians there also had to consider whether or not they would want to lower the rates on that income as well, or whether they wanted to tie their tax systems so closely to the federal tax system. Again, I think it’s important that we keep in mind both the desires of the taxpayers and the citizens of the states to have a system that’s workable and is easy to comply with, but at the same time, one that works for both levels of government. I see real opportunities for the states and the federal government to work together. I think, unfortunately, a lot of times those opportunities have been missed. Oftentimes, the thing that most gets talked about is having the federal government limit the power of state governments to impose taxes, but I think the federal government can use its influence in a much broader way to get states to both go in a particular direction if simplification is needed, but also to provide the resources for enforcement that are necessary both to the state and the federal governments. We work closely as administrators with the Internal Revenue Service, and if we didn’t, we really wouldn’t be able to enforce a lot of the taxes that we currently impose, just as states have to work with each other, or they wouldn’t be able to enforce the taxes, and that kind of cooperation at the administrative level I have not seen so much at the legislative level, but I hope that in the future, we will have opportunities to see more of that.