structure and policy - university of utahcontent.csbs.utah.edu/~fan/fcs5400-6400... · 11/16/2009 2...

11/16/2009

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Tax Tax

Structure Structure

and Policyand Policy

Mandeep Gill and Heather TraedenMandeep Gill and Heather Traeden

Mandeep GillMandeep Gill

Tax Policy and Structure

Taxation DefinedTaxation Defined

� 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

History of Tax in the U.S.History of Tax in the U.S.

� Colonial Taxation

• Sugar Act 1764-

• 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)History of Tax in the U.S. (cont)


• Townsend Revenue Act 1767-

• 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



• Boston Tea Party 1773-

• 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

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• 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• Property Tax was repealed in 1872 and then resurfaced in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)

� 16th 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


• 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

Primary Types of TaxPrimary Types of Tax

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

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Sales Tax Sales Tax

� 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

Sales Tax (cont)Sales Tax (cont)

� 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)Sales Tax (cont)

• 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 TaxProperty Tax

� 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

Property Tax (cont)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 TaxIncome Tax

• 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 (cont)Income Tax (cont)

• 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)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

• Dictated by the economy

• Can be mobile

• Most controversial tax

• Is a significant source of revenue

Permits, Licensures, and FeesPermits, Licensures, and Fees

� Charges, fees, or levies on governmental services,

permits, and licensures

� These include :� deer hunting permits

� driver license fees� building permits

� business licensure, etc.

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

Permits, Licensures, and Fees (cont)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 Summary Data on the U.S. Tax System

Source (1999) Amount (millions $) 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%

Excise Taxes 70,400 2.8%

Estate Taxes 22,900 0.9%

Total Federal Taxes 1,769,300 69.4%

State Taxes

PropertyTaxes 240,100 9.4%

Sales Taxes 200,600 7.9%

Income Taxes 189,300 7.4%

Excise and other Taxes 114,500 4.5%

Corporate Taxes 33,900 1.3%

Total State Taxes 778,400 30.6%

Total, All Taxes 2,547,700 100.0%

Tax Defined as…Tax Defined as…

1. Progressive

• Income Tax

• Property Tax

2. Regressive

• Sales Tax

• Income Tax (tax code cutoffs and limits)

• Permits, Licensures, and Fees

Tax Progressivity and RegressivityTax Progressivity and Regressivity

� 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

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� Argument for regressive tax

• Easy to collect and hard to evade

• Can assist government in influencing consumer behavior

• Equity in the fact that everyone pays the same


� Arguments against regressive tax

• Places a greater tax burden on lower income

consumers

• Impinges on freedom through government coercion


• 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

• Most concerns of tax equity are the responsibilities of the federal and state governments

• Local governments have little authority of wealth redistribution

What Do You Think?What Do You Think?

� 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?

Composition of the Tax BaseComposition 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?

Composition of the Tax BaseComposition 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

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Intended Purpose of Tax PolicyIntended Purpose of 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

Economic Concepts Related To Tax Economic Concepts Related To Tax

PolicyPolicy

• 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 Does Tax Policy and Structure Provide

Revenue for all Levels of Government?Revenue for all Levels of Government?

Absolutely

Does Tax Policy and Tax Structure Deter Does Tax Policy and Tax Structure Deter

or Influence Behavior?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 Has Tax Policy Achieved it’s Purpose in

Building a Strong Economic InfrastructureBuilding 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 Does Tax Policy Achieve it’s Intended

Purpose? 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?

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Side Affects of Tax Policy and StructureSide Affects of Tax Policy and Structure

� 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)

Interest Group Conflicts Interest Group Conflicts

• 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 How Do We Evaluate Tax Structure and

Policy?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 How Do We Evaluate Tax Structure and

Policy?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 AssessmentSummary 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?...

Heather TraedenHeather Traeden

The Expert Opinion From

Prevailing Ideologies and

Perspectives

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Conservatives and Critics of TaxationConservatives and Critics of Taxation

� 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

Conservatives and Critics (cont)Conservatives and Critics (cont)

� Tax cuts boost worker productivity

� Tax cuts increase investments

� Tax cuts put money in your pocket

The Critics of TaxationThe Critics of Taxation

� 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,

� 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)

� 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


� 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

� 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 ProponentsLiberals and Proponents

� Support paying taxes

� Support progressive Taxes

� Tax the rich

� Reduce taxes on the poor

� Use taxes to provide valuable government programs

Proponents for TaxationProponents for Taxation

� 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

Proponents for Taxation (cont)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


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


1970 1980 1990 2007

State & Local Gov Receipts 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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� 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

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%


� 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

Are There Problems With Taxation in Are There Problems With Taxation in

America?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

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What are the Real Issues and Debates?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 SurviveWe Will Survive

� http://www.youtube.com/watch?v=eim5jLlEPYI

structure and policy - university of utahcontent.csbs.utah.edu/~fan/fcs5400-6400... · 11/16/2009 2...

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