POLS 207 1st Edition Lecture 20 Outline of Last Lecture 4 9 2013 I Machine Politics II What led to the decline of Party Machines III The Reform Government Model IV Elitism verse Pluralism V Suburban Sprawl VI Annexation Cities Bringing In Unincorporated Areas VII Extra Territorial Jurisdiction VIII Annexing in Texas and in the Future Outline of Current Lecture 4 16 2013 I Two Important Financing Concepts Interdependence and Diversity II Types of Taxes a Property Taxes b General Sales Taxes c Income Taxes d Excise Taxes e Severance Taxes f User Fees g Lotteries III Criteria for Evaluating Taxes Equity Yield vs Cost IV The Texas Budget and the Source of Revenue for Texas HOMEWORK Watch The Plea PBS Frontline website Chapter Courts Crime and Correctional Policy o Section State Prisons and Correctional Policies 339 343 Chapter The Politics of Taxation and Finance o Section When Ends Don t Meet State Local Debt When a Local Gov Goes Bust 520 525 Chapter The Politics of Education o Section The Politics of Higher Education 592 595 TEST next Thursday April 25 2013 Tuesday REVIEW 7 8 Harrington 108 Topic Today s Lecture FINANCING STATE LOCAL GOVERNMENT Two important concepts 1 Interdependence a different levels of government depend on each other for financing b lower levels typically depend on higher levels for funding c Texas gets about 30 funding from federal government d money from federal gov and state gov goes to local gov to help them fund projects e money typically moves from higher to lower gov called intergovernmental transfer of money 2 Diversity a diversity between different states or localities i most state governments have an income tax TEXAS does not have a lottery etc ii every state is different in financing b diversity between different levels of government i every level depends on a different form of tax for its main revenue source 1 for federal government income tax 2 for state government sales tax 3 for local government property tax Types of Taxes Property Tax o What it is A tax on real property such as land buildings on that land etc a tax on the value of real property almost exclusively a local tax cities and counties depend heavily on property taxes Three Problems with property tax o 1 Property tax is really a tax on the VALUE of real property How do you determine the value counties asses property value by estimating which is difficult and often times arbitrary o 2 Certain properties are exempt from paying property taxes government buildings are exempt from paying property taxes churches and church owned property generally do not have to pay property tax problem is local property taxes fund police and fireman so what happens when the church catches on fire the fireman put it out even though they don t pay taxes so these same buildings rely on these services but do not pay the tax to help fund them o 3 Property taxes are not tied to one s income say a family bought a house 20 years ago over these years the property value went up but people do not normally get raises that often every year you are paying a little bit more of your income to property taxes property taxes go up faster if value goes up faster than your income goes up a concern for people who live on fixed income social security retirement pay etc Solutions to Some of the Problems o Two solutions to Problem 3 Homestead Exemption exemption of a certain amount of money from the calculation of the value of your home only good for your primary residence not your extra beach house etc not a percentage only an amount exemption helps mainly people with lower amount of income Circuit Breaker limits the percentage of a home owner s income that can be taken in property taxes General Sales Tax tax levy on retail sales o sales tax are equally enforced o about half the states have sales tax between 5 6 o generally not levied on prescription drugs or food o about 2 3rds of the states about 32 states authorize local governments to have sales tax o TEL Tax Expenditure Limit states authorize counties cities to have a sales tax and usually give a maximum Texas state sales tax is about 6 5 and then give counties cities to raise it about 1 so that is why we pay about 8 25 o Why would sales tax be more popular tax to rely upon than an income tax sales tax is a less visible tax so we don t realize how much we are paying in that form of a tax Income Tax o most states have it o Texas is 1 out of 7 states that does not have it o state income taxes are usually much much smaller than the federal government income taxes o Graduated vs Flat Tax Graduated Income Tax at federal level people with higher levels of income pay higher percentage of their income as income tax Flat Tax no matter what your income everybody pays the same exact income tax popular in state income taxes Excise Taxes taxes placed on selected specific commodities o cigarettes tobacco alcohol gasoline o some are referred to as sin taxes o general purpose of having a tax raise revenue to fund government services and programs o purpose of sin taxes second motive is to discourage consumption Severance Taxes taxes are levied on the extraction of scarce natural resources o oil timber coal natural gas o can shift the tax burden to people living in other states o severance tax on coal a lot of coal will be sold out of state so when a company extracts and takes the coal they pay a severance tax to the state but the company also raises the price of coal to help them pay that tax o severance taxes are larger paid by consumers o but overall severance taxes are not relied on that heavily by states o Alaska Montana North Dakota rely on about 25 Texas only relies on about 3 o two problems some states don t have these resources prices of these commodities can fluctuate greatly User Fees payment to the government for a specific good service or privilege o utilities buses subway systems tuition city parks o based on the benefit principle those who receive a majority of the benefit should pay the majority of the cost Lotteries o about 36 states have this a majority of states have lotteries o not a huge revenue source usually about 1 5 state revenue source o some states dedicate lotteries to specific uses such as education of the state Criteria for Evaluating Taxes What makes a good tax What type of tax do we want to rely on more heavily 2 Criteria Equity Yield vs Costs of Administration Equity o Progressive taxes as somebody s income increases their tax rate goes up example Graduated
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