Sources of Revenue for State Government

11 Key excerpts on "Sources of Revenue for State Government"

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  eBook - PDF

  Handbook of Governmental Accounting

  • Frederic Bogui(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  In addition, the federal government also borrowed significant amounts of money as additional rev-enue during much of the 1980s and early 1990s to meet the continued budget defi-cits (Mikesell, 2003: 106–111). Federal Receipts by Sources in 2003 (Total Revenue: $1.8 trillion) Individual Income Taxes 45% Corporation Income Taxes 7% Social Insurance and Retirement 40% Excise Taxes 4% Other 4% Figure 3.1 Federal revenues by major sources in 2003. (Data source: Historical Budget Data, Congressional Budget Office. 2006.) Expenditures and Revenues in U.S. Governments  141 3.3.3 Revenues of State and Local Governments Table 3.5 shows revenue sources of state and local governments in fiscal year 2003. In comparison with the federal revenue system, state and local revenue structures present much more complicated pictures. Different states and local governments rely to a different extent on a variety of sources, and not all state and local govern-ments have the same mix. Unlike the income-tax dominance at the federal level, state revenues come from more diversified tax bases. A substantial share of state funds comes in the form of aid from other governments, mostly from the federal government. Other than that, the most dominant source of state revenue comes from taxes on goods and services, which provide about 25% of state revenues. All but five states (Delaware, New Hampshire, Montana, Oregon, and Alaska*) levy a general sales tax, which cover all or almost all sales of products (some states exempt groceries and/or other prod-ucts such as some medicines; Tax Policy Center, 2006c). In addition, all 50 states levy selective excise taxes for particular products such as motor fuel, cigarettes, and alcoholic beverages. Another major state revenue source is income taxes, but they are not levied in all states (Tax Policy Center, 2006a). Seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—have no state individual income tax.

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  Lecture Notes in Public Budgeting and Financial Management

  • William Duncombe(Author)
  • 2018(Publication Date)
  • WSPC

    (Publisher)

  We begin this lecture with a brief description of the tax system in this country. The tax system — reflecting our complicated federalist system — is a complex web of different tax types used by different levels of government and revenue sharing between levels through intergovernmental grants. We will then turn to a brief discussion of revenue forecasting, which is a crucial part of the budgeting process. Finally, the bulk of the lecture will be devoted to a discussion of the criteria typically used to evaluate tax policies and government revenue sources.

  9.2Overview of the Tax System

  As you are well aware, the US has a very diverse system of government, with the federal, state, and local governments each playing an important role in the provision of public goods and services. Although federal, state, and local governments spend similar amounts of the total public budget, they finance these expenditures with significantly different revenue sources. As illustrated in Table 9.1 :

  1.Federal revenue comes primarily from the personal and corporate income tax and the payroll tax used to finance the social security system (not included in individual income taxes in Table 9.1 ). Although the federal government does use various excise taxes and import duties, it does not employ either a general sales or property tax.

  2.State revenue comes from a variety of sources. The major source of tax revenue is sales and excise taxes which account for half of state tax revenue. Personal income taxes are the other major source of state tax revenue. State governments do not generally use a property tax. In addition, federal aid is an important source of revenue for state governments (24% of total revenue). For New York, we see that personal income tax is the most important state source of revenue representing 46% of state revenue and almost 60% of state taxes. Consumer taxes (sales taxes) are less important in New York with 17.3% of state revenue and 23% of state taxes. This highlights the diversity across states in their tax systems. For example, four states do not have a general sales tax and seven states do not have a personal income tax.

  Table 9.1.   Percentage distribution of tax revenue for each level of government, FY 2010.

  a Note: Excludes social insurance contributions.

  Sources: US Bureau of Census, Governments and Budget of the US Government.

  Source: Thomas P. DiNapoli, “Citizens Guide 2009: A Pocket Reference to New York State’s Finances,” New York State Comptroller, pg. 2. https://www.osc.state.ny.us/finance/finreports/citizens_guide/citizensguide2009.pdf

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  Public Finance in Theory and Practice Second edition

  • Holley H. Ulbrich, Holley Ulbrich(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Part 3 Funding Government Taxes, Fees, and Grants

  The next seven chapters address the revenue side of government: the funds to pay for public programs, the distribution of the burden of paying for government, and the use of revenue instruments as means toward specific policy ends. The primary revenue source for government is taxes. Taxes are the focus of the next five chapters.

  The first two chapters explore the theory and practice of tax system design. The next three discuss each of the broad categories of taxes—income, sales, and property. The final two chapters in this part examine two other important revenue sources, fees and charges and intergovernmental grants.

  According to Justice Oliver Wendell Holmes, taxes are the price we pay for a civilized society. That dictum still leaves room to argue over whether the taxes are too high relative to the amount of civilization that citizens want or need or actually receive in return. It does mean that taxes are an inevitable part of living in society. Given the necessity of taxes, it is the economist’s task to provide some guidance in designing a tax system that minimizes the undesired side-effects of collecting them (efficiency) and apportions the burden in some way that addresses the equity concerns raised in Chapter 5 .

  Although taxes are still the primary form of revenue for governments at all levels, they are not the only source. Fees and charges, discussed in Chapter 16 , are a second and increasingly important way of paying for services that have some advantages in terms of both efficiency and equity. In both unitary and federal systems, intergovernmental grants represent an important supplement to own-source revenues for lower levels of government, a subject addressed in Chapter 17

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  Sustaining the States

  The Fiscal Viability of American State Governments

  • Marilyn Marks Rubin, Katherine G. Willoughby(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  † Local governments might show greater diversity in revenue choices if they had greater fex-ibility. However, as creatures of their state governments, they have available only the options allowed them by their states, and states tend to be rather restrictive. ‡ Tere are a number of constitutional principles within which states must operate. For example, the states may not tax in a manner that unduly burdens interstate or international commerce (the Commerce Clause), they must provide equal protection and due process, and they may not use payment of taxes as a requirement for voting. But these are applicable to all state poli-cies, not just those involving taxation. § Tis is in contrast to the situation for local governments. Tese units, as creatures of their states and lacking sovereignty granted by the federal constitution, have only the taxing powers granted by state actions. 34 ◾ Sustaining the States Table 3.1 State General Revenue in the United States, Fiscal Year 2010 Type of Revenue Total ($K) National Share of Tax Revenue National Share of Own-Source Revenue General revenue 1,562,962,875 Own-source general revenue 987,401,192 100.00% Total taxes 701,555,688 100.00% 71.05% Property taxes 14,264,321 2.03% 1.44% Sales and gross receipts taxes General sales and gross receipts 222,542,958 31.72% 22.54% Selective sales taxes Insurance premiums 15,826,938 2.26% 1.60% Motor fuels 36,636,267 5.22% 3.71% Public utilities 14,759,377 2.10% 1.49% Tobacco products 16,831,613 2.40% 1.70% Casino/racing excises 7,406,300 1.06% 0.75% Licenses Corporation 9,925,276 1.41% 1.01% Motor vehicle 20,865,522 2.97% 2.11% Occupation and business, NEC 12,749,807 1.82% 1.29% Income taxes Individual income 235,994,401 33.64% 23.90% Corporation net income 36,739,534 5.24% 3.72% Other taxes Death and gift 3,891,096 0.55% 0.39% Documentary and stock transfer 4,249,924 0.61% 0.43%

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  Financial Planning and Management in Public Organizations

  • Alan W. Steiss, Emeka O. Nwagwu, Alan W. Steiss, Emeka O. Nwagwu(Authors)
  • 2001(Publication Date)
  • Routledge

    (Publisher)

  Some sources are dependent upon the fiscal policies of other levels of government (e.g., federal and state aid programs); other sources are directly or indirectly related to the level of service and capital expenditures provided by government. For each revenue source, there is a rate or charge and an item subject to the levy of a tax, license, or charge. The yield must be estimated by determining how frequently the item subject to tax (or charge) will occur. No source of revenue should be estimated solely on collections of the previous year. Some revenue sources are more stable than others; however, a high level of stability should not lull the administrator into the pitfall of routine estimating. The following procedural steps are suggested as a basis for sound revenue estimates: 1. A file should be prepared for each source of revenue, containing the following information: a. a summary of the legal background, including date of adoption and reference to ordinances or legislation establishing the charges; 60 Chapter 2 b. a summary schedule of rates or charges; and c. a list of factors which influence the revenue yield. 2. A data sheet on each revenue source should be prepared, showing col­ lection information by months and totals by years. 3. The percentages collected each month should be compared to annual totals for the past three to five years to indicate seasonal influences and to establish monthly or quarterly revenue estimates for budget control purposes. 4. Up-to-date information should be maintained indicating local eco­ nomic conditions and trends; of particular value are data on building construction activity, real estate turnover, retail sales, employment and payrolls, and other common indices of business activities. 5. The advice should be sought of department heads administering pub­ lic service for which special charges are made.

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  State and Local Politics

  Institutions and Reform

  • Todd Donovan, Daniel Smith, Tracy Osborn, Christopher Mooney(Authors)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 10 352 state’s income, liberal states spend more per pupil on education and have more expansive Medicaid and welfare programs. 6 States also spend more on welfare when less affluent voters turn out in higher propor-tions in state elections. 7 Where Does the Money Come From? Major Sources of Revenues Income Tax The first state began collecting income taxes in 1911, prior to the constitutional amendment that granted the federal government the power to tax income. The most recent state to adopt an income tax was Connecticut in 1991 (Washington state rejected a proposed new income tax in 2010). Today, most of the revenue collected in the United States as income tax goes to fund the federal government. For most states, however, income taxes are a major part of their mix of revenue sources. Nearly all states (41) tax personal income, and two more states (Tennes-see and New Hampshire) tax just personal income from investments. In addition, Alaska and Florida tax corporate income. This means that Wyoming, Washington, Nevada, Texas, and South Dakota are the only states that lack taxation of personal or corporate income. 8 Fourteen states allow local gov-ernments to levy an income tax. The proportion of all states’ own-source revenues collected in state income taxes increased from about 10 percent in 1960 to 25 percent by the 2000s.

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  State and Local Government

  The Essentials

  • Ann O'M. Bowman, Richard C. Kearney(Authors)
  • 2014(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  REVENUES Although the state and local finance systems have their own strengths, weak-nesses, and peculiarities, certain trends can be found in all of them. The prop-erty tax is always unpopular. It is no longer a significant source of state revenue; its contribution to total local own-source local revenues, however, remains very important. User fees and other miscellaneous charges are gradually increasing. tax capacity (wealth) The taxable resources of a government jurisdiction. tax effort (burden) The extent to which a jurisdiction exploits its taxable resources. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 12 Taxing and Spending 283 State/Local and Total Taxes by State, as a Percentage of Personal Income, Per Capita, 2010 STATE STATE/LOCAL TAXES AS A % OF INCOME STATE/LOCAL TAX COLLECTIONS PER CAPITA RANK STATE STATE/LOCAL TAXES AS A % OF INCOME STATE/LOCAL TAX COLLECTIONS PER CAPITA RANK U.S.

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  Accountants' Handbook, Special Industries and Special Topics

  • D. R. Carmichael, Lynford Graham(Authors)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Many jurisdictions have legal ceilings on the property tax rates available for general operating purposes. Additionally, taxpayer initiatives have forced governments to seek new revenue sources. Accordingly, governmental units have turned increasingly to other types of revenue, such as sales taxes; business and nonbusiness license fees; charges for services; state-collected, locally shared taxes; and grants-in-aid from the federal and state governments. Department heads, however, ordinarily have little knowledge of revenue figures. As a result, the primary responsibility for estimating these revenues usually lies with the budget officer and the chief finance officer.

  Most governmental units, as a safeguard against excessive accumulation of resources, require that any unappropriated amounts carried over from a previous year be included as a source of financing in the budget of that fund for the succeeding fiscal year. Most controlling laws or ordinances provide for inclusion of the estimated surplus (fund balance) at the end of the current year, although many require that the includable surplus be the balance at the close of the last completed fiscal year.

  Departmental estimates of expenditures and supporting work programs or performance data generally are prepared by the individual departments, using forms provided by the central budget agency. Expenditures are customarily classified to conform to the standard account classification of the governmental unit and thus permit comparison with actual performance in the current and prior periods.

  Generally, personal services are supported by detailed schedules of proposed salaries for individual full-time employees. Nonsalaried and temporary employees are usually paid on an hourly basis, and the budget requests are normally based on the estimated number of hours of work.

  Estimates of materials and supplies and other services, ordinarily quite repetitive in nature, are most often based on current experience, plus an allowance, if justified, for rising costs. Capital outlay requests are based on demonstrated need for specific items of furniture or equipment by individual departments.

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  Budgeting for Local Governments and Communities

  • Douglas Morgan, Kent S. Robinson, Dennis Strachota, James A. Hough(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Intergovernmental revenues reflect the principles of federalism and local autonomy that are built into the U.S. and state constitutions. Governments at any level—federal, state, or local—may independently raise revenues and may, within their authority, transfer or grant revenues to other levels of government to further the public good. From a budgeting perspective, revenues transferred from one governmental entity to another governmental entity on the same or on a different level are categorized as intergovernmental revenues. Intergovernmental revenues are roughly structured in the following forms:

  • Direct grants or payments for the performance of a specific service or defined program of services under a voluntary intergovernmental agreement or a contract.
  • Reimbursement payments to another level of government to offset the costs of providing statutorily delegated or mandated programs and services, allocated by formula, lump sum, or entitlement.
  • Revenue sharing between one level of government and another.3

  State governments are the largest source of intergovernmental revenues for local governments. These revenues range from the direct return of shared tax collections to reimbursements granted for the operation of specific programs or services. Federal transfers typically provide an important but smaller source of intergovernmental revenues for cities, towns, and special districts. Federal funds often become the final source of several complementary revenues for a project, thus making it achievable. Local governments must carefully document intergovernmental revenues both for legal and financial compliance purposes, and to enhance transparency and public trust.

  Direct Grants and Payments

  Direct grants and payments for services are voluntary exchanges between governments. These types of grants and payments often exchange the performance of services for payment. For example, a small city might purchase law enforcement services from the local county sheriff’s department. The purchase would be structured under an intergovernmental agreement, similar to a contract that would specify the services provided, staffing and performance criteria, and payment amounts and schedules. The city would make regular payments, and the county sheriff’s office would register those payments as intergovernmental revenues. Programs to make intergovernmental grants may be structured on a competitive or noncompetitive basis, but the final decision to enter into agreement is voluntary. Federal grants in this category would typically include project grants, cooperative agreements, and direct federal payments for a specific use of local services (CFDA 2011

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  Fiscal Policy in Underdeveloped Countries

  With Special Reference to India

  • Raja J. Chelliah(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  1 By contrast, in 1956–57 land revenue brought only about 25 per cent of the total tax revenue of all the States. Another tax that has lost some of its former importance is the excise on alcoholic liquor which is within the jurisdiction of the States. As a result of the policy of Prohibition adopted by an increasing number of States from 1937, the revenue from this source has declined in many States.

  During the period of the relative decline of land revenue and State excise, the commercial taxes have come to the fore, the most important of them being the general sales tax. The emergence of the sales tax as an important source of revenue is an outstanding development in the sphere of State finances. In 1956–57, the total yield from sales taxation for all States was Rs 706·6 million, constituting about one-fifth of their total tax revenue. The sales tax is the main elastic source of revenue possessed by the States and is expected to increase its yield as it comes to be developed in some of the States that have taken to it lately.

  B.  TAXATION OF INCOME AND WEALTH

  THE more important taxes on income and wealth are levied by the Union Government. Constitutionally, the States have the power to levy taxes on agricultural income and estate duties in respect of agricultural land. These taxes, however, are not important from the revenue point of view. The taxes on income and wealth that we must consider, therefore, are primarily those levied by the Union Government.

  The Union Government now levies the following income and capital taxes: personal and company income tax, corporation tax, estate duty, expenditure tax, annual tax on wealth, and gift tax. The gift tax is intended, as in the United States, to supplement the estate duty. The expenditure tax and the annual tax on wealth, on the other hand, are intended to supplement the income tax. Of these taxes, the income tax and the corporation tax have been in existence for a fairly long time. The estate duty was introduced in 1953. The other taxes have been introduced only within the last two years, largely on the recommendation of Mr Kaldor, who was called in as a consultant to the Government of India in 1956. These several taxes are supposed to form an integrated whole and are considered by their advocates as adequate measures of taxation for a developing economy. In what follows, we shall first consider these taxes individually, in turn, and then discuss them as an inter-related system of taxation in the light of the principles evolved in the earlier sections of this book.

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  American Public School Finance

  • William A. Owings, Leslie S. Kaplan(Authors)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  State rankings 2017: A statistical view of America . Thousand Oaks, CA: CQ Press, Sage, p. 307.

  State and local sales taxes generate a great deal of funding for education. It is interesting to note how per capita income (see Table 5.5 ) and the state and local sales taxes vary. Connecticut has the highest per capita income level, but it ranks 20th in state and local sales tax as a percentage of personal income. Mississippi, on the other hand, has the lowest per capita income level and the 21st highest level of state and local sales taxes as a percentage of personal income. States attempt to secure resources to fund public services from those assets available that can pass political muster.

  Lotteries and Gambling (Voluntary Taxes)

  Revenue from legally sanctioned gambling plays a relatively small but important role in state budgets. Most states collect revenue from some form of gambling—lotteries, casinos, racinos (a blend of racetracks and casinos), pari-mutuel wagering, Native American casinos, and other less common gambling activities. States obtain the majority of gambling revenues from three sources—lotteries, casinos, and racinos. Table 5.7 shows the net revenue to states from those three sources (with casinos and racinos combined).

  In the wake of the Great Recession, many states authorized new gambling options to generate additional revenue. With the increased competition for limited gambling dollars, individual states’ revenue has declined somewhat. However, in fiscal 2015, local and state governments collected approximately $18.2 billion net revenue from lotteries alone. In this form of revenue collection, the government sells chances to win some prize. A government-sponsored lottery may be considered a voluntary tax. When a lottery winner claims the prize (paid by voluntary contributions), the state and federal governments then collect income taxes on what cost them virtually nothing. For our purposes, we will not consider gambling’s moral issues but only its function as revenue sources for education.22

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