11/16/2009
Mandeep Gill
Tax
Structure
and Policy
Tax Policy and Structure
Mandeep Gill and Heather Traeden
Taxation Defined
Taxation
charge against a citizens person, property or activity for
the support of government
Colonial Taxation
•
Federal government
State Government
Local Government (municipal, township, district, and
county)
Regional organizations like school, utility, and transit
districts
Colonial Taxation
•
•
Townsend Revenue Act 1767-
Sugar Act 1764•
Taxes can be levied by:
History of Tax in the U.S. (cont)
History of Tax in the U.S.
•
revenue raising act enacted by Britain to keep
English products cheaper then competitors by
placing a 6 cent tax on molasses
Stamp Act 1765•
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)
Colonial Taxation
•
Boston Tea Party 1773-
•
proposed by Charles Townsend of Exchequer
•
lead to the eventual American Revolution
•
placed tax on common colonial goods like lead,
paper, paint, glass, and tea
•
protest by American Colonials in protest of Britain's
tax policy
•
also lead to creation of courts to enforce payment
•
crates of tea thrown into the Atlantic Ocean in
defiance of Britain's tax policy
Property tax and additional sales tax were charged in
various jurisdiction and to various individuals,
especially farmers and owners of large parcels
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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
•
16th Amendment passed in 1913
•
•
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Property Tax was repealed in 1872 and then resurfaced in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
very limited
History of Tax in the U.S. (Cont)
History of Tax in the U.S. (cont)
History of Tax in the U.S. (Cont)
“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)
•
What gives Government the ability to generate
revenue through taxation?
•
•
The Constitution
Primary Types of Tax
1.
Sales Tax (regressive)
2.
Property Tax (progressive)
Income Tax (progressive and regressive)
Permits, Licensures, and Fees (regressive)
•
Constitutional and Congressional rules on delegation
3.
•
State Constitutions
4.
•
Truth in Taxation
5.
•
Tax Court
Utah not a “home rule” state•
Utah cities may not create new taxes without legislative
authority
Other taxes:
estate tax
payroll tax
excise tax
franchise tax
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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
•
•
One of the most publicly approved tax
•
High approval because of incremental
payment
•
Easy to collect
•
Can be too mobile
•
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
Real Property-
1.
Highly dependent an economic conditions
real estate and improvements to real estate
Tangible Personal Property-
2.
Property Tax (cont)
•
Property tax is paid on two types of property:
office equipment, furniture, and vehicles
Property Tax (cont)
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
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Income Tax
•
A personal tax levied on most income incurred,
statutorily defined as:
Income Tax (cont)
•
Income tax revenue for the U.S. varies among reports
•
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
The Congressional Budget Office estimates it at 50%
•
•
“…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 (cont)
•
Merits and drawbacks of income tax
•
Can be difficult to collect
•
Can decrease savings rate
•
Depending on ideology it is considered equal or
unequal
Permits, Licensures, and Fees
Charges, fees, or levies on governmental services,
permits, and licensures
These include :
•
Dictated by the economy
•
Can be mobile
•
Most controversial tax
•
Is a significant source of revenue
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
deer hunting permits
driver license fees
building permits
business licensure, etc.
Permits, Licensures, and Fees (cont)
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
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Summary Data on the U.S. Tax System
Source (1999)
Amount (millions $)
Tax Defined as…
Percent of all Taxes
Federal Taxes
Income Taxes
879,500
34.5%
Social Insurance Taxes
611,800
24.0%
Corporate Taxes
184,700
7.2%
70,400
2.8%
Excise Taxes
Progressive
1.
Income Tax
•
Property Tax
•
Estate Taxes
Total Federal Taxes
22,900
0.9%
1,769,300
69.4%
240,100
9.4%
Regressive
2.
State Taxes
PropertyTaxes
Sales Taxes
200,600
7.9%
Income Taxes
189,300
7.4%
Excise and other Taxes
114,500
4.5%
Corporate Taxes
Total State Taxes
Total, All Taxes
33,900
1.3%
778,400
30.6%
2,547,700
100.0%
Tax Progressivity and Regressivity
Progressive Tax
•
•
•
Progressivity can decrease savings rates
•
Disincentive to work or progress upward
•
Can lead to tax evasion
•
Increases tax burden on the wealthy
Income Tax (tax code cutoffs and limits)
•
Permits, Licensures, and Fees
Arguments for Progressive tax
•
Improve equality of tax structure
•
Has a natural stabilizer –
Income Tax highly progressive in structure as they
have a graduated rate based on personal income
Arguments against Progressive tax
Sales Tax
Tax Progressivity and Regressivity
A tax rate that increases as a persons discretionary
income or ability to pay increases
Tax Progressivity and Regressivity
•
•
•
if your income decreases so does your tax burden
Tax Progressivity and Regressivity
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
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Tax Progressivity and Regressivity
Argument for regressive tax
Tax Progressivity and Regressivity
Arguments against regressive tax
•
Easy to collect and hard to evade
•
Can assist government in influencing consumer
behavior
Places a greater tax burden on lower income
consumers
•
•
Impinges on freedom through government coercion
•
Equity in the fact that everyone pays the same
Tax Progressivity and Regressivity
•
•
Progressivity and Regressivity act as apparatuses to
determine tax equity and even distribution of the
tax burden
Where should the tax burden be placed?
Should we rely on regressive type taxes?
Who decides what taxes are fair?
Should we rely on progressive taxes?
What are their merits and drawbacks?
•
Not frequently debated by local officials
•
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
What Do You Think?
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?
2.
3.
property, sales, income, etc
Does my Constituency favor progressive or
regressive tax
Composition of the Tax Base
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
What is considered equal and fair?
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Intended Purpose of Tax Policy
Economic Concepts Related To Tax
Policy
To provide revenue for services and governmental
functions
•
Tax Policy can act as a corrective measure to
mitigate poor economic conditions
To deter certain behavior and encourage certain
behavior
•
Specific economic concepts include:
•
•
I.E Earned income tax credit
I.E cigarette tax
•
•
•
To build strong economic infrastructure through
the redistribution of wealth
•
•
•
•
Does Tax Policy and Structure Provide
Revenue for all Levels of Government?
Absolutely
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
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
Does Tax Policy Achieve it’s Intended
Purpose?
Tax policy and structure has and has not achieved
it’s various purposes throughout history
Triangulation• a strict mix of cuts and increases
• credited with balanced budgets and record economic growth in
the Clinton Administration
As with all policy balance is fundamental to
effective policy
What do you think?
Complete tax cuts with increased spending (two war fronts,
Homeland security)-
What philosophies do you subscribe to?
•
•
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
credited with record deficits and compromised economic
infrastructure in the most recent Bush administration
The answer, depends on who you ask
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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
•
•
•
•
•
•
•
•
•
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How Do We Evaluate Tax Structure and
Policy?
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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
Summary Assessment
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 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?
•
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
Heather Traeden
The Expert Opinion From
Prevailing Ideologies and
Perspectives
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Conservatives and Critics of Taxation
Conservatives and Critics (cont)
Support anti-tax platforms and tax cuts
Tax cuts boost worker productivity
Argue that taxes hurt economic growth
Tax cuts increase investments
Argue that Americans are over taxed
Tax cuts put money in your pocket
Support “Tax Relief”
Support cutting government programs to provide
tax cuts
The Critics of Taxation
Taxation is income redistribution
Uses tax payers money to support the poor
Uses tax payers money for foreign aid
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
Government seen as “them” and Americans seen as
“us”
Forces you to compromise your moral principles
Representative Dick Armey has argued,
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”
The Critics of Taxation (cont)
Requires individual action to say, “No”
You can find ways to “opt out”, disengage, and
remove your sanction
http://www.youtube.com/watch?v=bvvdKzi_Bhg&f
eature=pyv&ad=2827565066&kw=tax&gclid=CMmt
18Hzi54CFQ4MDQoduVsaqQ
Georgia Tea Party Rally, April 2009
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Liberals and Proponents
Proponents for Taxation
Support paying taxes
Taxes are good
Support progressive Taxes
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
Tax the rich
Reduce taxes on the poor
Use taxes to provide valuable government programs
Proponents for Taxation (cont)
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
Proponents for Taxation (cont)
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
Public roads
Clean water
Safe food standards
Proponents for Taxation (cont)
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
Proponents for Taxation (cont)
State & Local Gov Receipts
1970
1980
1990
2007
9.3
8.8
9.7
10.4
Federal Gov Receipts
19.0
19.0
18.0
18.8
Total Gov Receipts
28.3
27.8
27.7
29.2
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Proponents for Taxation (cont)
Government take over the last 40 years has
changed very little
Austria increased from 37.4% to 43%
Italy increased from 26.1% to 43.4%
Proponents for Taxation (cont)
From 28.3 % to 29.2%
Proponents for Taxation (cont)
Other important services provided by taxes
Police protection
Fire protection
Sewage treatment
Public education
Parks
Public libraries
Road maintenance, etc….
Proponents for Taxation (cont)
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)
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
Proponents for Taxation (cont)
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
Ave. Annual
Productivity
Growth
Rate
1950-1963
91.1%
3.5%
1964-1980
71.2%
2.2%
1981-1986
53.2%
2.1%
1987-1992
30.8%
1.7%
1993-2002
39.5%
2.1%
Are There Problems With Taxation in
America?
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
Americans who believe taxes are too high is now at
its lowest level since the 1960’s
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What are the Real Issues and Debates?
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?
We Will Survive
http://www.youtube.com/watch?v=eim5jLlEPYI
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