115 percent of the State average per capita income. A local government having a per capita income of 125 percent of the State average would have their tax effort decreased by 10 percent. Since tax effort is such an important part of the formula, this could cause a severe drop in their allocation. The same county or city could have a per capita income equal to or below the national average. However, the proposed change is only linked to the State average. Poverty or inverse per capita income already is a large factor in the allocation formula. If the administration wants to get at rich industrial enclaves, it can be done without imposing an arbitrary 115 percent on tax effort. We further would point out that many suburban jurisdictions do not have access to corporate and personal income tax revenues and are more reliant on the property tax than central cities. Despite per capita income data, these suburban governments are lagging behind other governments in trying to keep up with inflation. We strongly question the merit of this proposal and would urge the subcommittee to vote it down. The other proposed change, as we understand the proposal, would increase the maximum per capita share from 145 percent to 175 percent of the statewide average per capita share. This provision was put into the original 1972 act to try to limit disparities in payments between jurisdictions. This subcommittee considered this proposal in 1976 and wisely discarded it because of the large shift of funds within some States. It was thought to be politically impractical then and is even more so in the context of today's budget restraints. Mr. Chairman, we respectfully urge you and the subcommittee to approve a bill as expeditiously as possible. Our local governments need to know what to put in their budgets. Many of them right now are trying to put together their 1980-81 budgets and they are in the dark. You must be receiving the same telephone calls I am; what do we budget for next year? But even more important, we are concerned that with the short time remaining in this session and the difficulties Congress faces in balancing the fiscal year 1981 budget, we could lose this program. Not everyone in Congress feels as you and I do about the need to continue revenue sharing. Any delay or squabbling over formula could play into the hands of those who oppose the program. I hope I am not overstating the case, but it is crucial that this legislation move quickly. Mr. Chairman, I want to thank you again for giving us the opportunity to express our views on this important legislation. Mr. FOUNTAIN. Thank you very much. Mr. Wydler? Mr. WYDLER. I could not have made a better statement myself. As a matter of fact, it sounds like a statement I might have made myself. Obviously, the gentleman from Ohio and I cochair the Suburban Caucus here in the House, and we consider the revenue-sharing program in that caucus one of the most important and significant pieces of legislation that the Congress will consider this year. I am delighted to know of the strong support from those Members whose districts are essentially suburban, but as we well know, strong support comes for this program from urban areas and rural areas as well. So, we have a lot of allies in the fight to get this program renewed on terms and conditions that will be helpful to the local governments involved. I think the gentleman's testimony has done a lot to put that on the record, and I thank him for it. Mr. MOTTL. Thank you very much for that. Mr. FOUNTAIN. In view of the time limitations, we will move on to Mr. Kindness. It is a pleasure to recognize Hon. Thomas N. Kindness from Ohio, who serves on our full committee. We will hear from you at this time, Tom. STATEMENT OF HON. THOMAS N. KINDNESS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO Mr. KINDNESS. Thank you, Mr. Chairman. I wish to thank you and the members of this Government Operations subcommittee for the opportunity to testify this morning on the question of whether the Congress should reauthorize the general revenue-sharing program. I have a statement which I offer for the record. Mr. FOUNTAIN. That will be fine. Without objection, Mr. Kindness' entire prepared statement will be made a part of the record. [See p. 557.] Mr. KINDNESS. I will simply summarize my views on the subject. I think we are coming to the realization that governments at all levels are taking more than our economy has the capacity to provide and still allow our Nation to have a stable and sound economy. Some would describe this by saying that the government is too big, but more importantly, I believe that such a conclusion is based in part on a loss of confidence in the ability of government to do the jobs it has set out to do. More and more questions are raised as to the efficacy of government economic, environmental, health, and safety regulations. Similarly, more questions are raised about the escalating cost of social welfare programs. Revenue sharing cannot, in this atmosphere, escape scrutiny along these lines. It has been argued that it is the most cost-effective Federal grant program, but I believe that that assertion covers over a more fundamental issue, that being: as one of many Federal programs, should it be continued? I do not believe it should. In large part, this is because I believe it symbolizes, as much if not more than any other Federal grant program, the belief that government, regardless of the level, somehow knows best how to handle the wealth generated by the productive people of this Nation. That belief is wrong. Along with the phaseout of revenue sharing, we must make acrossthe-board cuts in Federal categorical grant programs so as to balance the budget, not just this year, but for each of the years to come. We must not balance the budget by increasing an already heavy tax burden on the people. Just as our Nation's economic problems did not occur all at once, I do not believe the Congress will be able to do all that is necessary this year or even next year. Accordingly, I am proposing that we not terminate the general revenue-sharing program, but rather that we provide for a phaseout of the program, as it is currently constructed, over a 3-year period. I am introducing legislation today which would reauthorize the revenue-sharing program for 3 years in order to illustrate an approach that I think is rational and reasonable and would be in keeping with a stronger, healthier federal system. The current authorization level of general revenue sharing would be maintained in fiscal year 1981. That level would be reduced by onethird for fiscal year 1982, and another third for fiscal year 1983. The program would then expire on September 30, 1983. This bill has a second title, however, which would be referred to the Ways and Means Committee. I want to mention it here in order to emphasize my point that we cannot look at general revenue sharing or individual categorical grant programs or bloc grant programs or taxes in a vacuum, separate and apart from the relationships between those various programs. So, the second title of the bill that I will be introducing would replace the existing itemized deductions for State and local taxes on the Federal income tax return with a credit amounting to 23 percent of all of those State and local taxes which would, under current law, be deductible. The credit would go into effect for calendar year 1982; that is, at the beginning of the second quarter after the first one-third reduction in the amount authorized for general revenue sharing. The 23-percent figure was arrived at as the figure that most closely represents the benefit of the existing deduction for State and local taxes on Federal income tax returns, individual, and corporate, plus an allowance for an increase in State and local taxes roughly equivalent initially to the amount we now authorize for general revenue sharing. Thus, if taxpayers want to have certain governmental services at the State and local levels, they would be free to choose to do so. We would not be continuing to force it upon them through general revenue sharing. I am well aware of the fact that many units of government have been forced to cut taxes, and some will say that the reason State government budgets are balanced is because of their general revenuesharing entitlements. I do not believe that this provides a justification, however, for continuance of general revenue sharing in and of itself. Some will say that it is fairer to have these services financed through the more progressive Federal income tax than through regressive local property and State sales and flat rate income taxes. But, what kind of progressive tax is this that takes larger and larger chunks of a taxpaver's income-in effect, benefiting from inflation? We are all aware these days that the American people are pretty mad about the way our Federal income tax operates in an inflating economy. So long as we have this kind of Federal tax structure, there will be little incentive, let alone opportunity, for State and local governments to modify their tax systems. Let me conclude by again urging the case for a phaseout of general revenue sharing. While revenue sharing accounts for a small amount of the revenues of State and local governments, it nonetheless is something that they have come to plan and depend upon, as Mr. Mottl has pointed out. Testimony before Senator Sasser's subcommittee indicated that in the first years of the program, much of the entitlement went for capital expenditures, as we all know; but since the 1976 reauthorization, an increasing portion of general revenue-sharing funds has gone into operating budgets. I do not think it either wise or fair to suddenly terminate such a program under those circumstances. In terms of balancing the Federal budget, that would certainly be the easiest thing to do. Six or almost seven billion dollars would be eased off the expenditure side of the ledger in one fell swoop. As I have said several times, we cannot look at revenue sharing in a vacuum. We must look at it across the board, and we will have many difficult decisions to make in cutting the budget. The expiration of the general revenue-sharing program has given us an opportunity to give it very close scrutiny. I think that we must very gradually eliminate the program and hope that the subcommittee will give serious consideration to the option that I am suggesting today. Again, Mr. Chairman, I thank you for the opportunity to present these views, and I would be happy to respond to any questions you may have. Mr. FOUNTAIN. Thank you very much. You have made some interesting observations, particularly with respect to the phaseout and the tax credit. At this point, without objection, a copy of your bill will be entered into the record. [The material follows:] 96th Congress 2nd Session H. R. IN THE HOUSE OF REPRESENTATIVES Mr. KINDNESS introduced the following bill; which was referred to the Committee on A BILL To amend the State and Local Fiscal Assistance Act of 1972 and the Internal Revenue Code of 1954 to replace the General Revenue Sharing Program with individual income tax credits for State and local taxes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that this Act may be cited as the Sec. 101. (a) Section 105 (c) of the State and Local Fiscal Assistance Act of 1972 is amended to read as follows: "(c) AUTHORIZATION OF APPROPRIATIONS FOR ENTITLEMENTS "(1) IN GENERAL.--There are authorized to be appropriated to the Trust Fund to pay the entitlements hereinafter provided for such entitlement period- "(A) $6,850,000,000 for the entitlement period beginning October 1, 1980, and ending September 30, 1981; '(B) $4,566,000,000 for the entitlement period beginning October 1, 1981, and ending September 30, 1982; and "(C) $2,283,000,000 for the entitlement period beginning October 1, 1982, and ending September 30, |