Taxing and Budgeting- National Taxes: under the 16th amendment (we pay national tax from our income tax). This amendment was passed in 1913 and allowed the government to tax individual and corporate income. We the people and the corporations automatically became the main source of government income.Even today, 60% of the money that the feds take in, they take it in through the 16th amendment. - State Taxes: texas used to rely on property tax as a source of income. Problem with this is that when property values go down, the income goes down also. Texas figured this out in the late 20s-early 30s during the great depression when people couldn’t afford their property. o In the 1930s, Texas starts to see taxes on cigarettes, beer, etc. In 1961, texas adopted a general sales tax on most items that were sold. A general sales tax is broad sales tax that is collected on most items. You don’t pay taxes on fresh food, medicine, newspaper, baby supplies, formulas, baby food but we do get taxed on diapers! 1 week a year usually in august, almost everything is non-taxable. o Texas also has selective sales tax (excise tax). These are taxes that are put on sales and manufacture that are used on certain items. Forexample: alcohol, cigarettes, gas. However, these taxes are usually included on a price of an item so we don’t know they exist. This typeof tax is also thought of as a hidden tax. There is a 10% built in on gas.o Another type of tax is gross receipt tax. These are taxes on the total gross/revenue/total sale of certain enterprises. o We also have a severance tax. This is a tax on raw materials when they’re extracted from the ground or their natural state. - Local Taxes: they’re on the bottom so they rely on property taxes as their major source of funding. These are called “Ad Valorem” Taxes. This is a tax that is set according to the value of the item. “Ad Valorem” can be assessed onreal property (land, buildings) and/or personal property (furniture inside the building, car). o How do we know how much real property is worth? Each county has acentral appraisal district. Their job is to value property according to state regulations to make sure we have uniform property values throughout the state. You’re not stuck with whatever the appraisal district says about your property tax. Texas allows us to go in and appeal out tax value. It doesn’t always work but we have the option to attempt to lower it. There are some exemptions to you if you’re a real property owner:o The Homestead Exemption: the exemptions are going to lower your tax liability/ the amount of money they’re going to charge you. The exemptions will vary from county to county. According to this exemption if you live in your home and you own it, you get to lower the tax. Because then you’re likely to take care of your property if you own it. You get an exemption if you’re older than 65 years old because they are seniors and have fixed income and we don’t want to put them on the streets. o Agriculture Exemptions: if you own livestock, this will substantially reduced your tax liability. - If cities have a certain sized population, they can also impose certain kind of sales tax. They can tax the same items that state does (except food, medicine, etc.)- We also have special taxing districts! They can also impose property tax. Ex: schools, hospital districts, municipal utility districts. These are for local government. The politics of Taxation- What to tax? Once we decide what to tax, Our Tax Base (the object/activity we’re going to tax) is used to raise money. If we keep taxing, we will be actually losing money because people will stop buying. Ex: If property tax is so high, people will not buy property because they cant afford tax.- Broad-Based tax: low tax amount on many items. This encourages more people to participate in purchasing something, or in an activity and it spreadsthe cost out amongst the population. - Whom or why do we tax? 3 common rationales for taxing:o 1: government wants to regulate some type of behavioro 2: we’re going to tax people according to the benefits that they receiveo 3: we ‘re going to tax people according to their ability to pay- 1 Regulatory tax: the government is trying to encourage/discourage some type of behaviors. The government will use taxes to encourage us to behave in a socially acceptable manner. The government spends a lot of money on health care. The healthy we are, the less money they spend. The government can also use taxes to punish/discourage us. These types of taxes are called SinTaxes. Ex: charge extra on alcohol, more tax on cigarettes. Texas has a tax if you enter into a Sexually Oriented Business. With these taxes, they place a heavier financial burden on the sinner. - 2 Benefits-received taxes: this is a tax assessed based on the benefits we receive. If you use it more, you’re going to pay more in taxes. Ex: gasoline. Kind of like a usage correlation. - 3 Ability-to-pay-taxes: the more money we make, more money we have. Morewe can afford, more we should pay. Ex: buying a $5,000 home vs. $50,000.Tax Rates- Progressive: the tax rates increases as your income increases. The more you make, the more you pay.- Regressive: tax rate that places more burdens on the lower and middle class. Ex: the sales tax or any other type of consumption tax. - Declining marginal propensity to consume: another theory, the more money you make, the less you spend. You’re going to have extra money and you’re going to put it into savings. Problem is, we want more. People would want to save more if the bank gave higher interest rates. - Tax shifting: businesses pay taxes, in reality, they move the cost to the consumers. Tax rate goes up, product price goes up. Businesses participate in tax shifting. This is a regressive tax.- Supply side economics: theory says that higher income people should be taxed less because it’s their savings and investments that stimulate the economy. Additionally, theory also says that property and sales taxes is easierto collect, harder to evade or avoid. Generally, it’s less burdensome to collect these taxes. Non-Taxes Revenues- Categorical grants: money from the federal government in form of a grant to the state/local government for a specific purpose. They usually require some sorts of matching funds (not fully matching, ex: federal give $10,000 if state gives $1,000) from the receiving government - Block grants: presidents