Sources of government revenue

• Government revenue

  Money received by a government
• Economic impact of taxes


  Resource allocation, behavior adjustment, productivity and growth, the incident of tax
• Resource allocation


  The factors of productions are affected whenever a tax is levied
• Behavior adjustment


  Taxes are used to impact certain activities (encourage home ownership, discourage sin tax)
• Productivity and growth


  By changing the incentives to save, invest, and work
• Incident of tax


  The party being taxed isn't always the one that bears the burden of the tax (who pays tax)
• The tax burden may be borne by companies, costumers, and shareholders
• Criteria for effective taxes are: equity, efficiency, and simplicity.
• Equity of taxes: Taxes should be distributed fairly among population
• Tax loopholes: Tax exceptions that allow companies and people to avoid paying tax on profits.
• Example of tax loopholes:

  • "Business" income (obtain additional expenses to offset income and pay less income tax)
  • Graduated corporate income (tax brackets increase as company income increase)
  • Exclusion on interest (companies and individuals do not pay interest on their investments in state and municipal bonds)
• Simplicity in taxes


  Tax laws should be written so both the tax payer and tax collector can understand them
• Individual income tax


  Tax on individual's earnings. The code is long and difficult to understand so it is disliked.
• Sales tax


  Tax levied on most consumer purchases
• Efficiency in tax


  Tax must be easy to administer and reasonably successful at generating revenue (Should raise revenue and should not harm the economy)
• Principles of taxation

  1. Benefit principle (Benefits should be proportional to payments)
  2. Ability to pay principle (According to income, regardless of benefits they receive)
• Three types of taxes

  1. Progressive taxes
  2. Proportional taxes
  3. Regressive taxes
• Progressive taxes


  Takes more from rich people
• Proportional taxes


  Takes the same percent from groups of all income
• Regressive taxes


  Takes more from poor people (any consumption tax)
• Federal government tax sources: Individual income tax, FICA tax, corporate tax, estate tax, gift tax, excise tax, customs duty, and miscellaneous fees
• Individual income tax:

  A progressive income tax on the income of individuals paid through a payroll withholding system
• Tax returns: An annual report to the IRS summarizing total income, deductions, and tax withheld.
• Indexing: A revision of the tax brackets to prevent employees from paying more in taxes because of inflation.
• Which seven US states do not have income tax?


  Alaska, Florida, Georgia, Nevada, South Dakota, Texas, Washington
• Corporate income tax: A tax on the profits of a business.
• Excise tax: A tax on the sale of goods or services.
• Luxury tax: A tax on luxury goods or services.
• Sin tax: A tax on a product or service that is considered harmful to society.
• Estate tax: A tax levied on the transfer of property when someone dies
• Gift tax: Tax placed on property given without a return
• Not taxable gifts: Gifts of money, property, or services to a charity.
• Customs duty: A tax on imported goods.
• User fees: A fee charged to users of a public service, such as a road or railway.
• Responsibilities of local government: Provide services to the community. Provide a safe environment for residents
• Responsibilities of state government: Provide public services, Provide public safety, Provide public order, Provide public health
• Responsibilities of federal government: protecting the rights of citizens, enforcing laws, providing services, and protecting the environment
• State government revenue sources:

  1. Intergovernmental revenue
  2. Taxes and fees (Sales tax, Income tax)
  3. Other revenues (Tuition fees, Surplus tax, Corporate tax, Hospital fees)
  4. Choice of tax
• Intergovernmental revenue: Funds collected by the government from other governments.
• The choice of tax

  The belief that individual tax payers should have direct control over how their taxes are spent