3 - Trust fund taxes vs. general fund taxes

Summary

Taxation is inherently political but all taxes do not generate the same political dynamics. An important distinction can be drawn between federal taxes precommitted for specific trust fund activities, on the one hand (mainly payroll taxes), and federal taxes which are considered general revenues (virtually all income taxes, corporate taxes, and certain excise taxes), on the other. This chapter compares the political economies of trust funds and general funds. While a deep understanding of trust fund politics requires a close analysis of actual cases, this approach can produce some insights into overall patterns of resource mobilization in American national government. The chapter begins with a brief look at the place of trust funds within the larger context of changing US tax regimes. The chapter then explores the responsiveness of trust funds and general funds to partisan shifts and other political factors using regression analysis. The results provide support for the claim that trust fund financing has been an important mediating factor in the politics of federal taxation.

Trust funds in the larger context of changing federal tax regimes

Taxation has never been popular in America. As C. Eugene Steurele argues in a penetrating historical essay, however, the United States nonetheless experienced an era of “Easy Financing” between the mid 1940s and the mid to late 1970s. Over this period, the federal government was able to massively expand domestic expenditures while simultaneously cutting general fund taxes and keeping total federal revenues constant at 18–19 percent of gross domestic product (GDP).