Chapter 5 Government Revenues and Expenditures Collect money through taxation If we were to combine all of our taxes from the states we have one of the lowest tax rates in the Western world Composition of Federal Tax Revenue 1950 2010 Individual income tax about 40 of revenue from the government Taxes decreased during Obama administration Corporate Income Tax has gone down to less than 5 since 1950 Payroll taxes 5 6 in 1950 and has gone up to 30 40 now We pay payroll taxes federal tax revenue is now paid for by individuals vs corporations Excise tax used to be 10 now it is about 2 3 Excise tax is for imports and tariffs Other sin tax ect Revenues and Expenditures Revenue is when you tax people expenditures is government spending Government taxes people then spends it on public goods 2007 government spent 15 200 per person Government received 12 650 from taxes I spent more on that because I was in school Schools and healthcare spend a lot The rich consume more than the poor because poor people receive literally nothing from TANF in Texas Redistributing income Who are we going to tax What are the things we are going to subsidize User or Client pay everyone who wants to buy something has to be able to buy something If you want your society to progress not everything can be based on user or client pay especially education The most important thing to allow a country to progress is education The problem is that not everyone can afford to pay for private education A M is subsidized by the government and if it wasn t very few can come to this school Since the government feels that productive individuals in education is an investment because if you re educated you will be a productive individual Education is seen as an investment Ability to pay govt uses taxes to find programs such as education Private Goods and Public Goods Excludable only those who pay gets the goods Non rivaling everybody can use without denying to others air Merit good goods which should not be denied to people who cannot pay for them like public education transportation healthcare ect Many countries view healthcare as a merit good and provide it in this country it is based on user or client pay and in others it us based on ability to pay government uses taxes to pay for it State Government Revenue Taxes Federal grants Fees and Licenses Interest o Drink is a 1 but you have a sales tax that makes it more o Welfare race to the top education o License to drive to hunt fish concealed carry marry ect o Texas is lucky because we had and still have oil and we have surpluses particularly way back then Texas has money in our saving account we invest our money in very conservative yielding and we derive interest from that Sales Borrowing o Derive revenue from sales borrowing to create a debt Gambling Lottery o Texas has lottery o Many states can t borrow but sometimes you can in a crisis Not State and Local Government Revenue Sources 2010 51 State and local taxes 24 Other State and Local Sources borrowing taxes grants ect 25 Federal support grants State government o Own revenue 75 school districts get money from property taxes o State Government Revenue 2009 average of 50 states Do not pay a personal income tax we pay higher sales tax than those states that have personal income tax Texas Total Revenue average of all these years State taxes Federal funds second largest source of revenue in Texas Texas State Taxes 47 Texas Total Revenue over time Federal support for revenue is Sales tax Simply helping the state out bcause they need tax dollars Majority of revenue comes from sales tax State sales tax is 6 25 and typically pay 8 25 1 goes to county government another goes to another Every time we want to raise taxes raise it on tobacco The lobbyists for alcohol companies are very strong Tax water but not alcohol Part of our tax system depends on how strong our lobbyists are Tax incidence impact WE can have taxes that are progressive as the income or the revenue is higher Progressive o Tax goes up as something costs more Most common Federal Income tax is a progressive tax Wealthy pay higher proportion of income in taxes Rich people will pay a higher percentage in terms of taxes Worse for rich people Neutral Regressive o If your pair of shoes is 700 you are going to pay 12 The impact on the pair of shoes is going to be the same for the rich person and as the poor person Very complicated o Flat tax impact is worse off for people with lower levels of people Poor pay higher proportion of income in taxes Even though it is the same amount the poor have less money than the rich 8 25 can be a meal for a poor person for a wealthy person it doesn t matter Impact is worse for poor people Taxes Tax incidence the impact of the taxes have to show the difference between tax rates and tax incidence Tax incidence progressive most countries have this Increases everytime your income level taxable after all exemptions and deductions goes up Tax incidence regressive poor pay higher proportion of income in taxes Regressive tax the poor are worse off Taxes only a small amount of people want to reduce taxes when people want to keep taxes stable or increase taxes Our system has a lot of exemptions and deductions Income tax Sales Tax o Most recently introduces in 1932 45 states o Base Sales subject to taxation pharmaceutical drugs exempted food is exempted o Rate Fixed 6 25 7 25 8 25 o Incidence Regressive o Based on consumption Young will consume more than the old Sales depend on economy Property tax flat rate tax property tax o Regressive Everyone pays property tax TX has high dependency on Property tax is based on wealth flat and regressive Local government is very dependent on it Property doesn t shrink and typically increases in value as people come in to live in cities suburbs You can enhance your property which will increase value of the property More sales tax less dependence on income tax States moving towards more regressive tax systems No one state is currently progressive South Dakota and Alaska have the lowest tax burdens Economy of scale if you spend a ton of money on roads in a small population it s going to be very expensive because so little people will use it Cheaper if you are larger because more people will use it and divide the cost over millions for that road
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