Lecture 18 POLS 207 Outline of Last Lecture Government Revenue and Expenditures I Two types of expenditures A Purchases aka building things B Transfers aka entitlements II Tax revenue III Federal grants in aid A Degree of state dependency on federal aid Outline of Current Lecture Who Bears a Tax Burden I Types of taxes A Income B Consumption C Real property II Tax level v Tax burden III Types of tax systems VERY IMPORTANT to understand for the test A Regressive B Progressive C Proportional Neutral Current Lecture Comparing national vs state local sources of tax type revenue Who bears the tax burden Taxes on Income e g Individual and corporate payroll e g Social Security Medicare UI WC o National 91 state local 25 o Remember that income tax is different than a tax on income Texas does NOT have an income tax But we definitely tax income i e payroll tax system etc Consumption e g general and selective sales user fees lottery tickets o National 9 state local 55 o You have to go out and buy consume something to be charged a consumption tax Real property Residential and business properties special case of consumption o National 0 State local 20 Only AK DE MT NH and OR have no general sales tax The national government gets an overwhelming amount of its income from taxes on income State local governments get most of their tax revenue from consumption taxes Some consequences of states reliance on consumption taxes Federalism o National government s progressive Income based tax system creates deeper pockets This is one source of modern centralization Fairness o Who bears the state local tax burden Complicated matter technical issues and how different taxes work out in practice by different income classes E g 50 states and 70 000 local taxing jurisdictions Diverse and very complicated tax code Differing income levels of population with diverse sources of income and consumption savings investing patterns Multiple uses of the tax code tax breaks tweaks of the system etc So who bears the tax burden Basically we re not sure Tax level Dollar value of taxes paid e g Total taxes paid or taxes paid per person family household Tax burden Taxes paid expressed as a percent Basically Tax burden takes tax level and measures it as a percentage proportion of your income e g A person family household income On average as tax level goes up tax burden goes up as well 2 For estimate of each state s AVERAGE tax level and tax burden see bar graphs on page 477 chapter 14 Progressive Tax burden goes up as income level goes up Ex Income taxes So as you make more money you get placed in higher and higher tax brackets and pay a higher percentage of your income in taxes than you did before Proportional aka Neutral Regardless of income level percentage of income that is being paid in taxes remains the same For example EVERYONE pays 10 of their income Regressive The opposite of progressive As income goes up the percentage of your income that you re paying in tax goes down Ex Sales tax everyone pays the same dollar amount but it affects poorer folks more than richer folks because it s a higher percentage of lower incomes than higher incomes