11/16/20091Tax Tax Structure Structure and Policyand PolicyMandeep Gill and Heather TraedenMandeep Gill and Heather TraedenMandeep GillMandeep GillTax Policy and StructureTaxation DefinedTaxation Defined Taxation- charge against a citizens person, property or activity for the support of government  Taxes can be levied by:  Federal government  State Government  Local Government (municipal, township, district, and county)  Regional organizations like school, utility, and transit districtsHistory of Tax in the U.S.History of Tax in the U.S. Colonial Taxation• Sugar Act 1764-• revenue raising act enacted by Britain to keep English products cheaper then competitors by placing a 6 cent tax on molasses• Stamp Act 1765-• enacted by British Government in order to maintain the military by placing a stamp tax on newspapers, wills, pamphlets, and playing cards History of Tax in the U.S. (cont)History of Tax in the U.S. (cont) Colonial Taxation• Townsend Revenue Act 1767-• proposed by Charles Townsend of Exchequer • placed tax on common colonial goods like lead, paper, paint, glass, and tea • also lead to creation of courts to enforce payment• Property tax and additional sales tax were charged in various jurisdiction and to various individuals, especially farmers and owners of large parcelsHistory of Tax in the U.S. (cont)History of Tax in the U.S. (cont) Colonial Taxation• Boston Tea Party 1773-• lead to the eventual American Revolution • protest by American Colonials in protest of Britain's tax policy • crates of tea thrown into the Atlantic Ocean in defiance of Britain's tax policy11/16/20092History of Tax in the U.S. (cont)History of Tax in the U.S. (cont)• Post Revolution Taxation• Tariffs-• a duty placed on goods when they move between countries• tariffs were the largest source of income for the U.S. government from the late 1700’s until the beginning of World War I• Limited property and sales tax enacted by various federal administrations and local entities also generated revenue for federal, state, and local governments• very limited History of Tax in the U.S. (cont)History of Tax in the U.S. (cont) Income Tax • The Historical roots of income tax are traced to the Civil War • In 1861 and 1862 congress passed two separate revenue acts to help with war efforts• Tax levy for income above $600 was 3%• Tax Levy for income above $10,000 was 5%• Property Tax was repealed in 1872 and then resurfaced in 1894 History of Tax in the U.S. (Cont)History of Tax in the U.S. (Cont) 16thAmendment passed in 1913 • “The Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among several states and without regard to the census or enumeration”• Until the ratification of this amendment the constitutionality of levying income tax was in question History of Tax in the U.S. (Cont)History of Tax in the U.S. (Cont) Today's tax structure and government revenue generation includes:• Sales Tax• Property Tax• Income Tax• Tariffs• Excise Tax• Fees, Licenses, and Intergovernmental chargesHistory of Tax in the U.S. (Cont)History of Tax in the U.S. (Cont)• What gives Government the ability to generate revenue through taxation?• The Constitution• Constitutional and Congressional rules on delegation• State Constitutions• Truth in Taxation• Tax Court• Utah not a “home rule” state-• Utah cities may not create new taxes without legislative authorityPrimary Types of TaxPrimary Types of Tax1. Sales Tax (regressive)2. Property Tax (progressive)3. Income Tax (progressive and regressive)4. Permits, Licensures, and Fees (regressive)5. Other taxes: estate tax payroll tax excise tax franchise tax11/16/20093Sales Tax Sales Tax  A tax on the purchase of goods, usually:• Every retail service made in a state• All Services rendered or commodities furnished by any utility • The amount paid for meals regularly furnished to the public• The amount paid for admission to any amusement, entertainment, or recreation eventSales Tax (cont)Sales Tax (cont) Responsible for 20% of the State of Utah’s revenue for Fiscal Year 2008 Responsible for 27% of Utah cities and towns revenue  Easy to collect Considered equal in the sense that everyone pays the same regardless of income Sales Tax (cont)Sales Tax (cont)• Merits and drawbacks of relying on sales tax revenues• Highly dependent an economic conditions• One of the most publicly approved tax• High approval because of incremental payment• Easy to collect• Can be too mobileProperty TaxProperty Tax Property tax is paid on two types of property:1. Real Property- real estate and improvements to real estate2. Tangible Personal Property- office equipment, furniture, and vehicles Property Tax (cont)Property Tax (cont)• Property Tax is responsible for 20% of the revenue generated by Utah Cities and Towns• Most property tax in Utah is distributed to school districts, as public education represents 31% of the states expenditure, by far the largest expenditure• For most of the early twentieth century property tax was the primary revenue source for both state and local government Property Tax (cont)Property Tax (cont) Merits and drawbacks of property tax• Stable and reliable source of revenue• Lacks the high growth upside of sales tax or income tax • Forgoes most risks of economic decline• Property tax largely immobile• Politically visible• Often paid in a lump some once a year11/16/20094Income TaxIncome Tax• A personal tax levied on most income incurred, statutorily defined as:• “…gains, profits, and income derived from salaries, wages, or compensation for personal services…of whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profit and income derived from any source whatever”Income Tax (cont)Income Tax (cont)• Income tax revenue for the U.S. varies among reports• The Congressional Budget Office estimates it at 50%• Income tax is polarizing and often a main concern of the public and subject of debate among economists and policymakers•