PUBLIC BUDGETING & FINANCE MIDTERM; SPEA V-186 JOHN FOX

Tax Policy involves TWO distinct questions involving Standards and Revenue Alternatives...

How high should taxes be? and What is the best tax structure to use?

Federal Government Largest Revenue Source...

Income/Corporate Tax

State Government Largest Revenue Source...

Sales/Income Tax

Local Government Largest Revenue Source...

Property Ownership

Why is sales tax most important to the States?

How easy it can be manipulated and created when needed.

two general equity standards

benefits received & ability to pay.

Vertical Equity

the idea that taxpayers with a greater ability to pay taxes should pay larger amounts

Regressive Equity

effective rates are lower in high ability groups and effective rates fall as ability rises.

Proportional Equity

Equal amount of tax paid by all groups.

Progressive Equity

Effective rates are higher in high ability groups and if effective rates rise as ability rises.

Collectability includes..

Low compliance costs and rates making revenue collections higher.

2 Types of Taxpayer systems

Passive and Active

Active System

systems which privatize much of the collection effort, impose most of collection responsibility on private taxpayer. (EXAMPLES: Income and Retail Tax)

Passive System

systems require tax collectors to do most of the work and bear most of the cost raising revenue.

Income Taxes

Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends).

Retail Sales Tax

a tax imposed on tangible personal property sold at retail

Core Functions of a Tax System

1. Taxpayer registration/service
2. Declaration or assessment
3. Delinquency control and compliance
4. Appeal or protest
5. Audit
6. Enforcement

First Stage of Income Tax

Civil War, to help finance the war expenditure.

Second Stage of Income Tax

Occured in 1913, when the 16th amendment was passed regarding collecting taxes on incomes.

Third Stage of Income Tax

Social Security Act of 1935, gave us a safety net.

Payroll taxes are..

regressive

Standard Deduction

A stated amount that you may subtract from adjusted gross income instead of itemizing your deductions

itemized deductions

expenses you can subtract from adjusted gross income to determine your taxable income

Deductions are based on...

a % of each total.

Tax Credits

specific amounts used to directly reduce tax liability

Arguments for Taxing Income

Equity, Adjustability, Yield, and Base Breadth.

4 Types of Sales Tax

General/selective, Specific/Ad Valoerm, Single/Multistage, and General fund.

4 Types of Excise Tax

Sumptuary, Transport, Environmental, Luxury/Miscellaneous

Sumptuary Excises

applied to control consumption of items that are unhealthy

Transport Excises

proxy service charge for transportation facilities

Environmental Excises

levied to improve efficency in the use of resources

Excise Taxes are...

Very inelastic.

Consumption Tax

a plan in which people are taxed not on what they earn but on what they spend

Why have Property Tax?

Reliable, Stable, Independent, and Local Fiscal Autonomy

What is the biggest expenditure on the local level?

Property Tax

Real Property

Real estate, realty, or land and improvements on the land.

Personal Property

Everything that can be owned that is not real property

Classification System for Property Taxes

(Lowest to highest) Residential, Industrial, Commercial

Property Tax Relief Mechanisms

Exemptions/Abatements, Circuit Breakers, and Deferrals

3 types of Private Government Revenue

User Fees, User Chargers, and Fiscal Monopoly/Utility Revenue

User Fees

charges levied for the use of a good or service. Reflect revenue raising potential of the rule of law.

User Charges

requires people who use a service more to pay a larger share of the cost

User Charges can function under two necessary conditions:

Benefits Seperability and Chargeability

User Charges can show..

Supply and Demand, which is important.

User Charge Guidelines

Any service showing the features of individual benefits, susceptibility to excluding non-payers, and an absence of redistribution elements are reasonable candidates for user charge financing.

Fiscal Monopoly and Utility Revenues

Government operated utilities, state liquor stores, and state lotteries.

Who is serviced by municipal water utilities

Majority of cities over a 5,000 person population.