$47 billion will be the price, more or less, of President Reagan’s “New Federalism”, if it ever becomes a fact. The President is firmly refusing to abandon his “supply-side” economic policy based on tax reductions, but at the same time he is equally firmly insisting on increased spending for the armed forces. He cannot hope in these circumstances to avoid a budget deficit, but he is hoping to take off some of the pressure on the Federal Treasury by persuading the States to accept the financial responsibility for some social welfare programmes.

The States, of course, have their own problems, and will have to be given some compensation for any additional financial burden they might accept. The President’s proposal is that from 1984 certain excise taxes now collected by the Federal government should be put into a trust fund, of which the States would be the beneficiaries. Income from the fund, estimated at about $28 billion a year, would be given to the States without any strings, to spend as they liked. After 10 years the fund would be wound up, and each State would then be free to continue or abolish the excise taxes as part of its own taxation policy.

However, the net result would be a transfer of expenditure from the Federal to the State government, and at least an extra $47 billion would have to be found by State taxpayers, especially industry. A business in any of the States can expect an increased tax burden at the State level, even if its Federal liability does not increase, and may in fact have to contribute to the upkeep of several governments. It has to find its share of heavy Federal expenditure, and must pay towards the expenses of any State in which it does business. The definition of “doing business” is thus very important, not only in the area of taxation, but also for other purposes. Decisions by the courts over many years show that there are three main reasons why a State government should wish to establish the fact of doing business within its borders. One reason is that a corporation must be licensed by any State in which it does business: the conditions of a licence vary from State to State, but usually require no more than formal registration and the payment of a fee and an annual franchise tax. A licensed corporation is usually referred to as being “qualified to do business”