USA - International Encyclopaedia of Laws

General Introduction 40–41§8. FINANCIAL POSITION AND RELATION BETWEEN FEDERAL AND SUB-NATIONAL COMPONENTS40. The U.S. Constitution grants the national government the power to tax,but this power is concurrent with that of the states. The grant of federal powerdoes not limit state competence. The federal government exercises the powerof taxation, the most important feature of which is the federal Income Tax.States each have their own system of taxation, with the major taxes consistingof sales, property, and income taxes. State income taxes are much lower thanthe federal income tax, and are usually deductible against the amount of taxowed to the federal government. Thirty-nine states currently impose their ownincome tax. State constitutions have detailed provisions concerning, and usuallyrestricting, the state’s general power of taxation. These restrictions operate aslimits on the legislative branch. Many state constitutions also contain specificrequirements for exemption from taxation.41. The federal government, pursuant to congressional laws, provides asubstantial proportion of the revenue for state and local governments. Duringthe 1990s, for example, state and local governments derived approximately 20percent of their revenues from transfer payments from the national government.These funds are provided pursuant to the federal government’s constitutionalpower to ‘spend for the general welfare.’ Often these funds are provided to thestates with significant requirements attached, which are binding on the statesif they want to receive the funds. 1 The states are not permitted to imposetaxation schemes that discriminate against out-of-state residents.1. See Pennhurst State School & Hospital v. Halderman, 451 U.S. 1 (1981).Constitutional Law – Suppl. 34 (October 1999) USA (Sub-national) – 19