In regards to public administration: What are the various types of taxes used by governments? Who are the actors that make funding decisions? How are they accountable to the public? How does the public influence this process? Why is taxing and spending so controversial?
Any government relies on taxes to operate, as well as to provide services to the citizenry. The different types of taxes are categorized into three broad divisions: income taxes, property levy, and duty on goods and services. Income taxes are charged by the federal, state, and local agencies upon personal income and business revenue. Ordinarily, income tax is progressive, meaning the higher one earns, the higher the amount of tax payable (Desai, 2012).
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On the other hand, property taxes are charged on real estate assets and personal property, in some cases. For instance, homeowners pay real estate taxes annually as part of the mortgage payments. For their part, taxes on goods and services are usually the reserve of state and local governments. They are charged per the volume of a given product sold. At the federal level, Congress and the president work hand in hand to define the budget for each fiscal year. Similar structures exist at the state and local levels. For accountability purposes, the annual budget prepared by the executive must be approved by Congress.
In addition, the public takes part in the budget-making process through open participation with the view of gathering civic opinions on how funds should be utilized. The National Advisory Council on State and Local Budgeting Recommended Budget Practices collects and incorporates these views during the process of preparing the budget (Burman & Phaup, 2012). However, taxing and spending remain controversial because various stakeholders cannot fully agree on how public funds should be spent. Tax expenditures operate just like spending programs. They can either benefit or harm the public depending on their efficiency and/or whether they are meant for a legitimate purpose.
In public administration, fiscal policy is the deliberate alteration of government spending and taxation to stimulate the government budget. Explain the effects of raising taxes on government revenue and a tax cut on the government budget. Define the following terms: discretionary fiscal policy and automatic stabilization.
Discretionary fiscal policy refers to deliberate changes in taxation and other financial activities due to the shifting economic trends. The government responds to such economic changes by either raising or lowering taxes. On the other hand, automatic stabilization refers to the process of putting in place features that ease fluctuations in a country’s budget. An increase in tax can result in a positive impact, such as encouraging people to work hard to meet the rising levy cost and/or to make savings and investments. Additionally, high taxes mean that the government raises enough revenue to support its services to its citizens.
Advocates of tax cuts also believe that they can help to improve the economy by encouraging spending. Thus, if careful consideration is made, the tax burden can be raised without hurting the taxpayers. Notwithstanding, raising income tax can force people to work less to avoid paying too much tax (Ferede & Dahlby, 2012).
Further, an increase in corporate tax may drive companies out of business, thus causing the economy to suffer. Additionally, the shifting nature of tax means that it is difficult for the tax burden to remain where it has been placed initially. For instance, in 1991, the US government decided to raise the sales tax for luxury goods, a move that unfortunately caused the buyers of these goods to change their spending habits. Eventually, manufacturers of luxury items had to lay off some of their employees (Krueger, 2012). On the other hand, tax cuts on the government budget reduce the government’s net tax. Therefore, what happens is that the government must seek ways of recovering the lost tax in a different sector of the economy.
In regards to public administration: As a city manager of a medium-sized city, property tax is a major source of city revenue. What are the major challenges with property tax revenue caps?
Several states have imposed caps on property tax revenue to regulate the rate at which their prices increase. While such caps keep the prices of the property down, they may interfere with the government’s ability to raise revenue for programs such as public education and healthcare. They can make the local revenue system become regressive (Burman & Phaup, 2012). These disadvantages are made worse by the fact that tax caps do not have an impact on the main factors that cause high property prices. For instance, they do not slow the rise in the cost of healthcare, which has an indirect impact on the demand for property. Several ways are used to manage the impact of tax caps, although each one has its shortcomings. First, the government may opt to increase state aid to substitute property tax revenue (Nelson, 2012).
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While this approach generally has positive results, it is difficult to maintain, particularly during hard economic times. During such periods, the government is likely to reduce spending, hence becoming unable to support such aids. Secondly, most caps allow citizens to vote against them if they are dissatisfied with their outcomes. For example, citizens may vote to override the tax cap if they believe it has caused public services to deteriorate (Burman, 2013).
The wealthy class pushes for these overrides, which, if successful, can lead to increased income disparities in society. Thirdly, local authorities tend to shift the tax burden to other local sources, for instance, sales taxes and fees, provided the law permits them. Such shifts would have the impact of increasing the tax burden on low-income individuals. Finally, when the mitigation on the tax caps fails, authorities are forced to lower the quality of services such as education and healthcare to the disadvantage of the residents.
Burman, L. (2013). Pathways to tax reform revisited. Public Finance Review, 41(6), 755-790.
Burman, L., & Phaup, M. (2012). Tax expenditures, the size and efficiency of government, and implications for budget reform. Tax Policy and the Economy, 26(1), 93-124.
Desai, M. (2012). A better way to tax US businesses. Harvard Business Review, 90(7), 134-139.
Ferede, E., & Dahlby, B. (2012). The impact of tax cuts on economic growth: Evidence from the Canadian provinces. National Tax Journal, 65(3), 563-594.
Krueger, A. (2012). The rise and consequences of inequality. Web.
Nelson, K. (2012). Municipal choices during a recession: Bounded rationality and innovation. State and Local Government Review, 44(1), 44-63.