Federal Credits for State Taxation
THE LAST chapters have said much about the various ways in which the federal government has lured the states into a common program through gifts in the form of grants-in-aid. Similar blandishments are offered by means of tax credits,1 by which taxes paid to the states are credited under certain conditions against similar federal taxation. In a sense, tax credits are variants of grants-in-aid, for both may be used to persuade states to fall in line with minimum federal standards and to aid in eliminating competition between states. They have mutual advantages and suffer from some of the same criticisms. The terms of both are likely to be so appealing that states cannot afford to refuse them. Thus the states are inevitably drawn into what many consider an ever-tightening federal web. On the other hand, some people, interested primarily in the development of particular programs through grants-in-aid or tax credits, impatiently consider the inevitable duplication of these arrangements nothing but waste and a roundabout means of accomplishing what should be done more directly. Nevertheless, at certain points, the courses of the grant-in-aid and the tax credit do diverge.
The line between grants-in-aid and tax credits is in some cases indistinct. In the United States Forest Service, for example, a quarter of all federal receipts is divided to be turned back to each state where there is a national forest, to be used for schools and roads.2 Nor is the tax credit idea very different from the contingent legislation of South Carolina, which demanded payment of____________________