POLI 370 - Week 10
POLI 370 - Week 10 POLI 370 001
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POLI 370 001
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This 5 page Class Notes was uploaded by runnergal on Friday March 25, 2016. The Class Notes belongs to POLI 370 001 at University of South Carolina taught by Dr. Xuhong Su in Winter 2016. Since its upload, it has received 10 views. For similar materials see Introduction to Public Administration in Political Science at University of South Carolina.
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Date Created: 03/25/16
POLI 370 – Lecture 15 Local Revenue 1. Property tax 2. Sales tax 3. User fees Attributes of a Good Tax System 1. High level of equity 2. Economic efficiency 3. Easily collected 4. Produces sufficient revenue Benefits Principle: taxpayers should pay taxes in proportion to the benefits they receive from public expenditures. Abilitytopay Principle: citizens should bear tax burdens proportional with their respective abilities to pay taxes. 1. Horizontal Equity: people with equal ability to pay should have equal tax burdens. 2. Vertical Equity: people with higher ability to pay taxes should pay more taxes. Taxation Efficiency o Taxation: distributing resources between public and private administrations that all have different functions. o Pareto standards: allocation of resources where one cannot make people better off without making other people worse off. o Inefficient taxation results in deadweight loss (people buy less of a good because taxes increase the price of the good, which eventual results in total revenue loss). Tax Incidence o Tax Incidence: the final distribution of tax burdens. o Taxes may cause net income to fall (bad for producers) or cause prices to rise (bad for consumers). o Tax Shifting: performing an action to avoid a tax, like shifting a property tax from the landlord to the tenant through higher rental rates. This includes forward shifting, backward shifting, and absorption. Effect of Federal Tax: progressive Effect of State and Local Taxes: regressive Total Effect of All Taxes: slightly progressive Income Tax Filing o Income = consumption + change in net worth o Must Report: Income Family size Interest on savings if $400+ Stocks and funds Tax credits Alimony Personal business Capital gains Rental income Farm income Unemployment compensation Social security checks Other income Tuition fees Student loan deduction o Adjusted Gross Income: total income from all taxable sources. o Taxable income = AGI exemption deduction o Current Exemption: $4,000 per person o Deductions can be standard (a certain amount of money determined by the government) or itemized (a certain amount of money determined by your expenses for that year) o Potential Itemized Expenses Unreimbursed medical expenses up to 7% of AGI State and local income taxes State and local property taxes Interest expenses, such as student loans and mortgage income Charitable donations up to 50% of AGI Causality and theft losses Job expenses, such as classes for a master’s degree o Tax Indexing: The personal exemption, standard deduction, limits of each income bracket, and beginnings of deduction and exemption phaseouts are adjusted every year to offset inflation effects on the real values of these amounts. o Capital gains and interest income earners are not subject to indexing. o How to Do Your Taxes: 1. Find your tax base subtract abovetheline deductions get your adjusted gross income (AGI) 2. Subtract exemptions from your AGI compare the standard deduction versus your itemized deduction and choose the larger get your taxable income 3. Apply tax rates get your tax liability before credits 4. Subtract tax credits get your regular tax liability 5. Pay tax/claim refund POLI 370 – Lecture 16 Economic Terms o Budgeting links revenue to spending. Governments must: 1. Decide how much money to spend. 2. Decide how much money to collect. 3. Decide where to spend the money. 4. Decide how/in which ways to spend the money. o Fiscal Year: a year used for accounting or tax purposes. Federal government’s fiscal year is October 1 – September 30 . State government’s fiscal year is usually July 1 – June 30 , but they can vary according to states’ respective constitutions. o Surplus: more money is raised than spent in the fiscal year. o Deficit: more money is spent than raised in the fiscal year. o Debt: the accumulated deficit over time. o States must have balanced budgets. o State Budget Timeline: 1. Governor proposes budget. 2. Congress approves balanced budget, which is mostly likely different than the governor’s budget. 3. Governor approves the budget OR the governor vetoes the budget, Congress passes a different balanced budget, and the governor approves the new budget. 4. Compare to the realized balanced budget, where states can borrow from previous or future years. Federal Level o The federal government has the constitutional power to borrow money. o The federal government cannot remain open without a budget (since that implies there is no money to run the government). o AntiDeficiency Act: government operations must shutdown when there is no budget or face criminal charges; this will occur because it is illegal for a certain department or agency draw money from the federal government that is not appropriated to it. o The federal government currently has lots of debt; it owes most of its debt to international investors. Federal Government Debt o The government spends lots of money on mandatory programs and defense. o Discretionary spending (where budgeting happens) has decreased while mandatory spending (where spending is determined by eligibility rules, such as age or disability) has increased. o The Social Security fund initially worked because there were many working baby boomers (taxpayers) and few elderly people (benefit receivers). Now, there are fewer people (and therefore fewer taxpayers) and lots of elderly baby boomers (lots of benefit receivers). Since there is less money coming into the fund than is going out of the fund, the fund will soon have to pay people out of its reserves and will eventually become insolvent. o This social security crisis could be avoided by increasing social security taxes, decreasing the amount of benefits, and increasing the eligibility age. Budgeting o Budgeting: social decisions made about the use of scarce resources. Essentially, the federal government must decide how much money to spend on which social programs. Authoritative allocation of resources, values, and governmental institutions all play different parts in this process. o Budgeting Process: 1. Strategic planning 2. Form budget 3. Present budget 4. Execute budget 5. Track performance 6. Evaluate results o This process repeats for every fiscal year. o Since this process takes so long, there are usually three budget cycles occurring at once, with one each in the planning/formulation stage, the presenting stage, and the execution stage.