Intro to public budgeting and finance exam 2

First stage of income tax

to help finance the civil war expenditure and was financed by excise taxes and tariffs on imported goods

second stage of income tax

income taxes were a common place and the law of the land, world war one began, and this provided the financial base for defense

third stage of income tax

social security act, medicare tax was created, payroll tax proportion (shared burden by placing it on the employee and the employer)

what type of tax is a payroll tax

regressive tax

what type of tax is a income tax

progressive tax (higher income \== higher tax)

How is income tax different in the US than other countries

We do not have VAT in addition to income taxes

gross income

earned income from wages before any payroll deductions from all revenue sources

deductions

variable amounts that you can subtract, or deduct, from your gross income. All individuals are entitled to a deduction from taxable income for certain personal expenses

taxable income

the earnings on which tax must be paid; gross income adjusted minus tax deductions
-pay or if have credit thats where they come into play and determines what you finally pay

arguments for income taxes

1. Equity
2. Adjustability
3. Yield
4. Base Breadth

1040-Ez, 1099, and 1040 Itemized difference

1040 Ez: not claiming exemptions, deductions, or credits
1040 Itemized: standard kind
1099: for people who own their own business, contracts, or pay their own taxes

what are deductions based off of?

percentage of each total

Arguments for and against income tax that are the same

Equity

pure public goods

non rival and lack of exclusion

common pool good

rival and lack of exclusion

toll good

exclusion and non rival

two parts to payroll (income) taxation

income taxes and payroll taxes

most and least stable tax

most-property tax
least-sales tax

four types of tax distinctions

1. General- all transactions at a level of economic activity (except food)
2. selective - (excise tax) enumerated transactions (lodging tax on hotel rentals)
3. specific - only applies to the number of physical units bought or sole (gas per gallon tax)
4. ad valorem - tax applies to the value of the transaction and adding percentage to the total bill (sales, property, vat tax)

where does general taxes vs specific (excise taxes) go

general: for general purposes of the government
excise taxes: go to special funds for expenditure only on specific purposes (ex: most motor fuel rev collected by states and fed goes into special funds for highway expenditures)

4 types of excise taxes

1. sumptuary excises: (sin tax) for controlling the consumption of items that are considered immoral or unhealthy, pays for externality created by this (weed,gambling,coffee,sugar), easiest to tax
2. Transport excises: proxy service charge for transportation facilities
3. environmental excises: levied to improve efficiency in the use of resources, done by showing recognition associated with the taxed product (charging to go to the beach)
4. miscellaneous-luxury excises: applied for reasons that include the capture of extraordinary taxpaying capacity.

multistage vs single stage taxation

multi-may apply every time a transaction occurs, could occur at more than one of the points of exchange (manufacturer, wholesaler)
one- happens in the production and distribution process

what is sumptary excises taxes also known as

sin tax

Elasticity and Excise Taxes

tax is passed on to the customers, excise taxes are inelastic (demand doesn't change and customers will pay any tax for it regardless of price)

Retail sales tax vs VAT (value added tax)

Retail: single stage tax
VAT: consumption paid at each stage a person adds value to a good, multi stage tax

Triangle and VAT

triangle goes up with taxes being paid at each level
-levels are:
Bottom:suppliers, then individual manufacturers, product manufacturers or wholesalers, then retail merchant

how much percent of property taxes is on the local level

47% of the budgetary needs

four reasons why proprerty taxes is capable of financing the local gov that can be locally levied and administered

1. reliable
2. stable
3. independent
4. provides local fiscal autonomy

most expensive to least property tax levies

1. school districts
2. municipalities/townships
3. non-sustaining government created entities

biggest expenditure on the local level

property taxes

annual wealth tax

tax based on the market value of assets owned by a taxpayer, requires a value estimate procedure to provide the tax

real property

real estate, realty, or land and improvements on land, soil and things permanently fixed to it by nature

personal property

Everything, other than real property, that can be owned (automobiles, jewelry, machinery, stocks, bonds)

Three classifications of property tax in the valuation metric least to greatest

1. residential taxes are the lowest rate
2. industrial is taxed the second
3. commercial property is taxed the highest

classifications meaning

applies different effective rates to different types of property, type of land determines value

tangible personal property vs intangible personal property

tangible: property held for its own sake (cars, machinery, inventories of raw materials and finished products, and household items)
Intangible: property values because it represents and ownership or claim on something in value (stocks, bonds, and other financial assets)

property tax relief mechanisms

1. exemptions and abatements - used to lure commercial and industrial property development (homestead, religious, educational, charitable nature, gov)
2. circuit breakers - shifts the tax burden using tax income levels to judge who can most afford to pay
3. deferrals - (ex: elderly, disabled, those w/ limited income are permitted to pay tax on the basis of old property values)

levy

the amount of revenue the government plans to collect from the property tax

homestead

exemption for residential homeowners, have to own for a year

what it the opposite of taxation

coersive

three types of private government revenue

1. user fees
2. user charges
3. fiscal monopoly and utility revenue

user fees

derived from government sale of licenses to engage in otherwise restricted activities, reflects the revenue raising potential of the rule of law rather than voluntary exchange in the private market

two types of user fees

license taxes and franchise fees

user charges

Prices charged for voluntarily purchased, publicly provided services that, although benefiting specific individuals or businesses, are closely associated with basic government responsibilities (identified by user as something preferable and wanted)

two things that can only function with user charges and activities are financed

1. benefits separability
2. chargeability

why are user charges good

lets the community as a whole to benefit and react to grow the service

four user charge guidelines

1. household support functions
2. industrial development support
3. amenities
4. services provided to tax exempt entities

Fiscal Monopoly and Utility Revenues

government receives funds from exclusive sale of a private good which the government regulates (duke energy,vector), gov can grant legal monopolies over the production or distribution of a particular good or service

twin lakes

private model and represent that the public is allowed to register what they want as the demand as the supply and it can expand and represents for what they want to register for government services

Private government revenue

revenue to finance these services can be raised without the brute force of compulsion, but through voluntary exchange

rule of law

principle that the law applies to everyone, even those who govern

benefit spillover

-assignment of services
-a critical factor in identifying what level of gov should provide a public service

correspondence principle

makes sure benefits are being offered by the right government level

subsidiarity

government responsibilities for a function should be at the lowest level of government that can deliver the function efficiently

subsidiarity and devolution

moving government responsibility to lower levels of government seeks to improve responsiveness and accountability, central government transfers powers to a local government

three different systems of coordination and assistance

1. Revenue adjustments
2. grants
3. mandates

Property taxes and levies on most and least money goes to

1. school districts
2. townships
3. non self supporting government entities

revenue adjustments - credits

tax levied by one government unit acts as a full or partial payment of a liability owed to another level of government

who pays for the largest part of education

state

largest expenditure on the local level

education

grants

the transfer of spending power or command over resources from one government to another
Ex: government aid to school districts

Types of categorical grants

1. formula aid: distributed by a legislative or administratively determined formula with elements to determine aid (ex: income, population, unemployment)
2. Project-aid: distributed at the discretion of the administrator for particular projects, usually from a state or local gov

Two forms of categorical grants

1. Matching: grants that have provisions that require the recipient to spend a specified sum of each dollar spend by the fed in the grant
2. Maintenance of effort: require recipient to continue a specified level of spending ina. specific area to receive the federal funds

Block grants

usually distributed to general purposes governments where categorical go often special purpose governments

revenue sharing grants

a formula distribution with few or no restrictions on the use of funds provided.

what level of government is revenue sharing grants on

state and local

three types of state aid education grants

1. Flat grants general and categorical: every school district receives the same dollar amount per pupil, no distinction between affluent and non affluent
2. Foundation grants: 3/4 states use these, uses foundation for minimum spending per pupils and the target tax rate to the district tax base to determine spending per pupil
3. guaranteed tax base (percentage equalizing): formulas provide aid to districts to make up for the difference between tax bases. (mix of flat and foundation)

mandate

ruling that places an expenditure requirement on a government to behave in a manner other than they would ordinarily

three types of intergovernmental coordination

1. revenue adjustments (ex: state sales tax write offs)
2. grants (education grants of gov to school districts)
3. mandates (environmental regulations)

branch of gov that can mandate spending at any level

judicial