Tax Policy and Structure

Size: px

Start display at page:

Download "Tax Policy and Structure"

Jason Atkinson
6 years ago
Views:

1 Tax Structure and Policy Mandeep Gill Tax Policy and Structure Mandeep Gill and Heather Traeden Taxation Defined History of Tax in the U.S. Taxation- charge against a citizens person, property or activity for the support of government Taxes can be levied by: Federal government State Government Local Government (municipal, township, district, and county) Regional organizations like school, utility, and transit districts Colonial Taxation Sugar Act revenue raising act enacted by Britain to keep English products cheaper then competitors by placing a 6 cent tax on molasses Stamp Act enacted by British Government in order to maintain the military by placing a stamp tax on newspapers, wills, pamphlets, and playing cards History of Tax in the U.S. (cont) History of Tax in the U.S. (cont) Colonial Taxation Townsend Revenue Act proposed by Charles Townsend of Exchequer placed tax on common colonial goods like lead, paper, paint, glass, and tea also lead to creation of courts to enforce payment Property tax and additional sales tax were charged in various jurisdiction and to various individuals, especially farmers and owners of large parcels Colonial Taxation Boston Tea Party lead to the eventual American Revolution protest by American Colonials in protest of Britain's tax policy crates of tea thrown into the Atlantic Ocean in defiance of Britain's tax policy 1

2 History of Tax in the U.S. (cont) History of Tax in the U.S. (cont) Post Revolution Taxation Tariffs- a duty placed on goods when they move between countries tariffs were the largest source of income for the U.S. government from the late 1700 s until the beginning of World War I Limited property and sales tax enacted by various federal administrations and local entities also generated revenue for federal, state, and local governments very limited Income Tax The Historical roots of income tax are traced to the Civil War In 1861 and 1862 congress passed two separate revenue acts to help with war efforts Tax levy for income above $600 was 3% Tax Levy for income above $10,000 was 5% Property Tax was repealed in 1872 and then resurfaced in 1894 History of Tax in the U.S. (Cont) History of Tax in the U.S. (Cont) 16 th Amendment passed in 1913 The Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among several states and without regard to the census or enumeration Until the ratification of this amendment the constitutionality of levying income tax was in question Today's tax structure and government revenue generation includes: Sales Tax Property Tax Income Tax Tariffs Excise Tax Fees, Licenses, and Intergovernmental charges History of Tax in the U.S. (Cont) Primary Types of Tax What gives Government the ability to generate revenue through taxation? The Constitution Constitutional and Congressional rules on delegation State Constitutions Truth in Taxation Tax Court Utah not a home rule state- Utah cities may not create new taxes without legislative authority 1. Sales Tax (regressive) 2. Property Tax (progressive) 3. Income Tax (progressive and regressive) 4. Permits, Licensures, and Fees (regressive) 5. Other taxes: estate tax payroll tax excise tax franchise tax 2

3 Sales Tax Sales Tax (cont) A tax on the purchase of goods, usually: Every retail service made in a state All Services rendered or commodities furnished by any utility The amount paid for meals regularly furnished to the public The amount paid for admission to any amusement, entertainment, or recreation event Responsible for 20% of the State of Utah s revenue for Fiscal Year 2008 Responsible for 27% of Utah cities and towns revenue Easy to collect Considered equal in the sense that everyone pays the same regardless of income Sales Tax (cont) Property Tax Merits and drawbacks of relying on sales tax revenues Highly dependent an economic conditions One of the most publicly approved tax High approval because of incremental payment Easy to collect Can be too mobile Property tax is paid on two types of property: 1. Real Property- real estate and improvements to real estate 2. Tangible Personal Property- office equipment, furniture, and vehicles Property Tax (cont) Property Tax (cont) Property Tax is responsible for 20% of the revenue generated by Utah Cities and Towns Most property tax in Utah is distributed to school districts, as public education represents 31% of the states expenditure, by far the largest expenditure For most of the early twentieth century property tax was the primary revenue source for both state and local government Merits and drawbacks of property tax Stable and reliable source of revenue Lacks the high growth upside of sales tax or income tax Forgoes most risks of economic decline Property tax largely immobile Politically visible Often paid in a lump some once a year 3

4 Income Tax Income Tax (cont) A personal tax levied on most income incurred, statutorily defined as: gains, profits, and income derived from salaries, wages, or compensation for personal services of whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profit and income derived from any source whatever Income tax revenue for the U.S. varies among reports The Congressional Budget Office estimates it at 50% Income tax is polarizing and often a main concern of the public and subject of debate among economists and policymakers Conservative ideology vs. Liberal ideology Trickle Down Correction vs. Service Oriented Correction Capitalistic redistribution vs. Socialistic redistribution Income Tax (cont) Permits, Licensures, and Fees Merits and drawbacks of income tax Can be difficult to collect Can decrease savings rate Depending on ideology it is considered equal or unequal Dictated by the economy Charges, fees, or levies on governmental services, permits, and licensures These include : deer hunting permits driver license fees building permits business licensure, etc. Can be mobile Most controversial tax Is a significant source of revenue Permits, Licensures, and Fees (cont) Permits, Licensures, and Fees (cont) Accounts for 15% of State of Utah s revenue Accounts for 5% of Utah s cities and towns revenue Generally, in order to set amount of fees, policy makers must conduct a study to determine the average individualized cost of the infrastructure, service, or commodity for which the fee is being charged Merits and drawbacks to permits, licensures, and fees Appropriate pricing structure hard to determine Is considered equal and unequal depending on ideology Can often directly offset costs for various services if priced appropriately 4

5 Summary Data on the U.S. Tax System Source (1999) Federal Taxes Amount (millions $) Percent of all Taxes Income Taxes 879, % SocialInsurance Taxes 611, % Corporate Taxes 184, % Excise Taxes 70, % Estate Taxes 22, % TotalFederal Taxes 1,769, % State Taxes PropertyTaxes 240, % Sales Taxes 200, % Income Taxes 189, % Excise and other Taxes 114, % Corporate Taxes 33, % Total State Taxes 778, % Total, AllTaxes 2,547, % 1. Progressive Tax Defined as Income Tax Property Tax 2. Regressive Sales Tax Income Tax (tax code cutoffs and limits) Permits, Licensures, and Fees Progressive Tax A tax rate that increases as a persons discretionary income or ability to pay increases Income Tax highly progressive in structure as they have a graduated rate based on personal income Arguments for Progressive tax Improve equality of tax structure Has a natural stabilizer if your income decreases so does your tax burden Arguments against Progressive tax Progressivity can decrease savings rates Disincentive to work or progress upward Can lead to tax evasion Increases tax burden on the wealthy Regressive Tax Taxes that take a larger percentage from low income citizens compared to high income citizens Example: Gas tax is applied at the same rate regardless of how much an individual personally earns Sales tax considered regressive, tax rates the same regardless of income 5

6 Argument for regressive tax Easy to collect and hard to evade Can assist government in influencing consumer behavior Arguments against regressive tax Places a greater tax burden on lower income consumers Impinges on freedom through government coercion Equity in the fact that everyone pays the same What Do You Think? Progressivity and Regressivity act as apparatuses to determine tax equity and even distribution of the tax burden Who decides what taxes are fair? Not frequently debated by local officials Where should the tax burden be placed? Should we rely on regressive type taxes? Should we rely on progressive taxes? What are their merits and drawbacks? Most concerns of tax equity are the responsibilities of the federal and state governments Local governments have little authority of wealth redistribution Composition of the Tax Base Composition of the Tax Base When considering tax there are two primary questions to consider as a policymaker 1. What tax do you want to rely on to create reliable revenue? property, sales, income, etc 2. Does my Constituency favor progressive or regressive tax 3. What is considered equal and fair? Tax Structure and policy must be balanced in order to keep revenues consistent for service delivery and fair to constituents Most important considerations of tax policy and structure 1. Efficiency 2. Equality and fairness 6

7 Intended Purpose of Tax Policy Economic Concepts Related To Tax Policy To provide revenue for services and governmental functions To deter certain behavior and encourage certain behavior I.E Earned income tax credit I.E cigarette tax To build strong economic infrastructure through the redistribution of wealth Tax Policy can act as a corrective measure to mitigate poor economic conditions Specific economic concepts include: Capitalism Socialism Wealth Regressive vs. progressive structures expenditure vs. revenue Stimulus Fee structure Cost Benefit Analysis Equity and implications of higher and lower costs for various constituencies Does Tax Policy and Structure Provide Revenue for all Levels of Government? Absolutely Does Tax Policy and Tax Structure Deter or Influence Behavior? Excise tax on tobacco has reduced cigarette smokers, however, this has coincided with health and scientific advancement High fees on participation in certain trades and industries has helped influence consumer behavior in the direction that favors governments desire Tax Cab Licensure river rafting permits, etc Has Tax Policy Achieved it s Purpose in Building a Strong Economic Infrastructure Trickle Down Economics- slashing taxes across the board credited with saving the economy in the aftermath of the Carter administration during the Reagan Administration Triangulation- a strict mix of cuts and increases credited with balanced budgets and record economic growth in the Clinton Administration Complete tax cuts with increased spending (two war fronts, Homeland security)- credited with record deficits and compromised economic infrastructure in the most recent Bush administration The answer, depends on who you ask Does Tax Policy Achieve it s Intended Purpose? Tax policy and structure has and has not achieved it s various purposes throughout history As with all policy balance is fundamental to effective policy What do you think? What philosophies do you subscribe to? 7

8 Side Affects of Tax Policy and Structure Interest Group Conflicts Over correction Under correction Too coercive and impedes constitutional rights Political consequences cause apprehension when tough choices need to be made Inequity Can have negative impact on the economy Can inadvertently effect certain industries (Excise Tax on cigarettes effects paper makers) Tax Policy effects everyone but it effects groups in very different ways. Think about how it may effect these groups The Elderly The Wealthy The Poor Minorities Corporate America Home Builders Home Owners Renters (higher rent cause of landlord property tax) Disabled People may belong to more than one group and that changes the dynamic How Do We Evaluate Tax Structure and Policy? Measurements of various economic indicators GDP Municipal financial reports Special district financial reports Federal and State Government financial reports Trade deficits Interest rates Historical reference Public Opinion Global economic evaluation Tax structure of industrialized nations How Do We Evaluate Tax Structure and Policy? Analysts utilize 5 elements of evaluation Condition layer evidence what is happening Criteria what should be happening Effect what is the impact Cause why did it happen Recommendation what should be done Summary Assessment Heather Traeden Tax Policy is often based on ideology, however, most non-partisan analysts agree that balance is a key when considering who and how to tax What do the experts Say?... The ExpertOpinion From Prevailing Ideologies and Perspectives 8

9 Conservatives and Critics of Taxation Conservatives and Critics (cont) Support anti-tax platforms and tax cuts Argue that taxes hurt economic growth Argue that Americans are over taxed Support Tax Relief Support cutting government programs to provide tax cuts Tax cuts boost worker productivity Tax cuts increase investments Tax cuts put money in your pocket The Critics of Taxation The Critics of Taxation (cont) Taxation is income redistribution Uses tax payers money to support the poor Uses tax payers money for foreign aid Government seen as them and Americans seen as us Representative Dick Armey has argued, Publicly people support taxation and often agree to increases if they can get a slice of the redistribution pie Privately people try to avoid it whenever they can Forces you to compromise your moral principles Modus operandi of totalitarian oppression Education and health care are difficult to afford because the government itself makes us poor through high taxes The Critics of Taxation (cont) The Critics of Taxation (cont) David Keating National Taxpayers Union (1990) If we don t seize on this revolutionary moment to rein in taxes and rein in entitlements, we could be looking at a government headed for financial oblivion and a populace that is so over-taxed and so desperate that we could be talking about real revolutions Requires individual action to say, No You can find ways to opt out, disengage, and remove your sanction eature=pyv&ad= &kw=tax&gclid=cmmt 18Hzi54CFQ4MDQoduVsaqQ Georgia Tea Party Rally, April

10 Liberals and Proponents Proponents for Taxation Support paying taxes Support progressive Taxes Tax the rich Reduce taxes on the poor Use taxes to provide valuable government programs Taxes are good Support government programs that work to solve societal problems Support justice and economic security Work to promote the public good Taxes provide programs that improve our lives Public roads Clean water Safe food standards Taxes are our dues we pay our dues to be Americans and enjoy the benefits of American society. Taxes are what we pay to live in a civilized society that is democratic, offers opportunity, and has a huge infrastructure available to all citizens. This incredible infrastructure has been paid for by previous taxpayers. Roads and highways, the Internet, the broadcast airwaves, our public education system, our power grid every day we all use this vast infrastructure. Our dues maintain it. George Lakoff Country Tax as % of GDP (2006) SWEDEN/DENMARK 49.1 FRANCE 44.2 ITALY 42.1 AUSTRIA 41.7 UNITED KINGDOM 37.1 SPAIN 36.6 GERMANY 35.6 CANADA 33.3 SWITZERLAND 29.6 UNITED STATES 28.0 The previous slide shows the levels of taxation in other Western Countries Americans carry much less of a tax burden than the citizens in almost every comparable Western European Country State & Local Gov Receipts Federal Gov Receipts Total Gov Receipts

11 Government take over the last 40 years has changed very little From 28.3 % to 29.2% Austria increased from 37.4% to 43% Italy increased from 26.1% to 43.4% Spending on foreign aid and welfare amounts to less than 3% of the federal budget Government spends three times the amount on programs like Social Security and Medicare then it does on Medicaid, welfare and food stamps In 1999, the government spent $72 billion on housing subsidies for the middle and upper class and only $24 billion for low income housing and rent subsidies Other important services provided by taxes Police protection Fire protection Sewage treatment Public education Parks Public libraries Road maintenance, etc. Taxation is associated with higher worker productivity. Not in and of itself, but productivity depends on a large number of factors. Top Ave. Income Tax Rate % 3.5% % 2.2% % 2.1% % 1.7% % 2.1% Ave.Annual Productivity Growth Rate Are There Problems With Taxation in America? Government is us and spending is generally supposed to reflect our collective will The money doesn t belong to the government, it belongs to us. But the government belongs to us too. It does not steal from us, we pool resources so we can act on behalf of the commonweal the weal (well-being) common to us. Taxes are not tithes imposed by tyrants, they are self imposed duties that permit the our government to discharge our common purposes. (Benjamin Barber, 1996) Americans who believe taxes are too high is now at its lowest level since the 1960 s Of course What bothers most people about taxes Some in America are not paying their fair share Wealthy too little Middle class and poor pay too much 11

12 What are the Real Issues and Debates? We Will Survive How fair are taxes? How much of the tax burden should be shouldered by various economic classes? Are there better and worse ways to collect taxes? Should we rely more on regressive taxes and less on progressive taxes? Should we continue the substantial tax breaks to the middle and upper classes? 12

CHAPTER 15 THE CONGRESS, THE PRESIDENT, AND THE BUDGET: THE POLITICS OF TAXING AND SPENDING CHAPTER OUTLINE

CHAPTER 15 THE CONGRESS, THE PRESIDENT, AND THE BUDGET: THE POLITICS OF TAXING AND SPENDING CHAPTER OUTLINE I. Introduction (pp. 493-496) A. A budget is a policy document allocating burdens and benefits.