UNIT 3
TAXING AND SPENDING
“In this world, nothing is certain but death and taxes!”
Benjamin Franklin
‘No Taxation Without Representation!”
American Colonists
“Give me Liberty or Give me Death!”
Patrick Henry
___________________________________________________
U.S. NATIONAL DEBT CLOCK
The Outstanding Public Debt as of 01 Dec 2014 at 05:40:37 PM GMT
is:
The estimated population of the United States is 319,519,985
so each citizen's share of this debt is $56,257.43.
The National Debt has continued to increase an average of
$2.41 billion per day since September 30, 2012!
NAME__________________________________________
1
Taxes and Regulation
https://www.docsoffreedom.org/readings/taxes-and-regulation
In America’s free society, entrepreneurs of many kinds start businesses that create the nation's wealth. The
Founders established the federal government in the Constitution, and the American people ratified it to
protect the rights and property of its citizens. That meant that national defense, court systems, and political
administration all became part of the U.S. government. Therefore, some taxes were necessary to support the
limited functions of this new government.
To raise the revenue to support government, the Founders never proposed an income tax, especially a
"graduated" or "progressive" income tax that makes some groups pay higher rates than others. Instead, the
Founders wanted consumption taxes – levies on imports or luxury goods. Why?
Because, as Alexander Hamilton wrote in Federalist No. 21, "The amount to be contributed by each citizen
will in a degree be at his own option, and can be regulated by an attention to his resources." Hamilton
added, "If [import] duties are too high, they lessen the consumption…and the product in the treasury is not
so great…This forms a complete barrier against any material oppression of the citizens by taxes of this
class, and is itself a natural limitation on the power of imposing them" (Alexander Hamilton, Federalist
No. 21, 1787).
From the presidency of George Washington until about 1910, the U.S. relied on consumption taxes—tariffs
on imports or duties on whiskey—to balance its budget each year. The country’s freedom, protection of
property rights, and low taxes created the perfect environment for huge economic growth, and America
became the world's greatest industrial power.
In the early 1900s, a group called the progressives became active, and they wanted to increase tax revenue
because they wanted to increase the size and functions of government. Led by Presidents Theodore
Roosevelt and Woodrow Wilson, progressives believed that "government experts," often the progressives
themselves, could run America better than ever before if only they had more tax revenue to create new
government programs. Thus, the progressives supported an income tax that would allow politicians to
determine what groups in society ought to pay what tax rates.
Often progressives also wanted to regulate the products entrepreneurs sold, what prices could be charged
for those products, what wages had to be paid to laborers, and how many hours per day they should work.
By such regulation, progressives hoped to reward behavior and jobs that they believed made society better.
Such regulations, however, would also have negative effects: private individuals might not go into business
at all, or at the very least, face many problems in growing their businesses. Nevertheless, to the
progressives, any negative consequences which might arise as a result of their proposed regulations seemed
minor.
Roosevelt and his fellow progressives believed that someone who had a large fortune, "by the mere fact of
its size," had to be treated differently from other people. In other words, rich people did not have the same
right to their labor and their property as other groups did. The Constitution did not support taxing some
groups at high rates and others not at all. So the progressives supported and achieved the Sixteenth
Amendment to the Constitution in 1913, which gave Congress the "power to lay and collect taxes on
incomes from whatever source derived" and at whatever rates Congress chose to put in place.
The Sixteenth Amendment became law just as Woodrow Wilson became president in 1913. As a leader of
the progressive intellectual and political movement, Wilson wanted to start with small rates, set a precedent
for a graduated tax, and then increase rates over time. Under the new tax law, the top rate was 7 percent on
all income over $500,000. Progressives easily sold this law to voters because most Americans paid no
income tax at all, but politicians could promise audiences that they might receive benefits from the new
revenue.
2
Earlier, under consumption taxes, Americans chose how much tax they paid, but under the income tax
politicians would vote how much tax citizens would pay. Congress slowly increased the tax on incomes of
rich people. As we have seen, the income tax of 1913 started with a 7 percent marginal tax on the richest
Americans. (Marginal tax refers to the practice of a tax that applies to income above a certain level; in this
case, any income above $500,000 was taxed at 7 percent.) Two years later that was increased to 15 percent.
During much of the 1920s, the richest Americans paid a top income tax of 25 percent. The top rate rose to
63 percent in 1932 under Herbert Hoover and then to 79 percent in 1935 under Franklin Roosevelt. The
World War II years pushed it to 94 percent on all income over $200,000.
Not surprisingly, with so much wealth being taxed, many entrepreneurs during the 1930s closed their
businesses. Unemployment skyrocketed from 3 to 25 percent from 1929 to 1933. The U.S. was in the Great
Depression, the worst economic crisis in the nation's history. From 1913 to 1943 the top marginal income
tax rate had gone from 7 to 94 percent. What's more, the rates increased for all Americans, and by 1943
most American families were paying almost 20 percent of their income in taxes to the federal government.
Many politicians, like Franklin Roosevelt, believed a larger, more powerful government could do more for
its citizens. He defended America's transformation from liberty and strong property rights to less liberty
and a strong government.
After World War II, many Americans recognized that high taxes and bigger government may have
prolonged the Great Depression. In 1945, shortly after the war ended, the U.S. Congress cut tax rates on
both personal incomes and corporations. New products poured into the marketplace, and the U.S. economy
flourished. Inventions such as copy machines, television, new types of housing, and fast food became part
of American society.
In a similar way, after the hard times of the 1970s, President Ronald Reagan tried lower tax rates on
incomes and corporations, and the U.S. became a world leader in computers and new technology. America
had twenty-five years of strong economic growth from 1982 to 2007. More than twenty nations, in fact,
copied the low tax rates of the U.S., and standards of living often improved throughout the world.
The economic record of President George W. Bush (2001-2009) was mixed. On one hand, he did get
Congress to lower tax rates on income and capital gains. This increased prosperity and economic growth.
But Bush also increased federal spending on many new projects and that increased the national debt. In the
2008 recession, he also promoted bail-outs for corporations such as AIG and CitiGroup through TARP
(Troubled Asset Relief Program).
After 2008, however, the U.S. increased tax rates and regulations once again, and the economy has again
stagnated. Since 2008, the United States has dropped on the Economic Freedom Index, with some of the
highest corporate taxes of any industrialized nation. High taxes mean that corporations tend not to expand,
but instead, business contracts. The example of President Reagan’s administration gives us the alternatives
that could once again stimulate the American economy.
3
UNIT III – TAXING AND SPENDING
I. TAXING AND SPENDING
1. Name 2 of the most important areas in which Congress makes Laws?
A. Passing Laws to Raise Money for the government(s)
B. Passing Laws to Spend Money for Government(s) programs
2.
Why do the people of the United States pay TAXES?
A. Productivity – Gov’t uses tax money to provide goods and services to help people
B. Equity – Gov’t uses tax money to help people – See the Robin Hood concept!
C. Elasticity – The Gov’t uses tax money in times of crisis to help where needed.
3.
What are the 2 major sources of government revenue?
TAXING AND BORROWING
What is a TAX?
ANY Money paid by individuals, businesses and organizations to support the
government
What does the Constitution say about the power to tax?
A. Article I, Section 8 : “The Congress shall have the power to lay and collect taxes,
duties, imposts and excises, to pay the debts and provide for the common defense
and general welfare of the United States. . . “
B. 16th Amendment (1909): “The Congress shall have the power to lay and collect
taxes on incomes, from whatever source derived, without apportionment among the
several states, and without regard to any census or enumeration.”
4.
5.
6.
What is Revenue? The money the government collects from taxes and other sources
7.
Another important power of Congress at both the national and state level is over government
spending. What is Appropriation? Power to approve Government spending

Article I Section 9 of the U.S. Constitution: “No money shall be drawn from the
treasury, but in consequence of [except by] appropriations made by law.”
8.
2 STEP PROCESS FOR CONGRESS TO APPROPRIATE MONEY
A. AUTHORIZATION BILL – WHAT?
A Bill that sets up a federal program and specifies how much money will be
needed for the program
B. APPROPRIATIONS BILL – WHAT?
A Bill that approves spending / allows government to spend money
9.
Monetary vs, Fiscal Policy

Fiscal Policy, in economics and political science, is used by the
government revenue collection (mainly taxes) and expenditure
(spending) to influence the economy. It is done by the US Congress
and the Executive Branch.

Monetary Policy is the process by which the monetary authority of a
country controls the supply of money, often targeting a rate of
interest for the purpose of promoting economic growth and
stability. The official goals usually include relatively stable prices and
low unemployment. Monetary Policy is set in the USA by the Federal
Reserve Board.
4
10. THE US NATIONAL BUDGET
A. Problem: The general public wants to reduce total federal government spending but
they also want more money spent on specific federal programs – YOU CANNOT HAVE
IT BOTH WAYS.
A. Another Issue: WHAT IS THE DIFFERENCE BETWEEN THE NATIONAL
DEBT AND THE DEFICIT?


B. DEFINITION: A Budget is a document that announces how much the government
will collect in taxes and spend in revenues and how those expenditures will be
allocated among various programs.
Theory: 1st decide how much $ the government is going to spend and then allocate that $
among different programs and agencies
Reality: It is just a list of everything the government is going to spend $ on. Instead of
allocating $ to be spent for various purposes, it is just a way of adding up what is being spent.
C. CONSTITUTIONAL ROLES – Congress authorizes programs and appropriates
money for the programs BUT the President has veto power over appropriation
spending and authorization and the Executive Branch executes the programs
D. Parts of the U.S. Budget
 Discretionary Spending – Appropriations Bills –
1/3rd of the amount of money spent by the government
 Mandatory Spending – 2/3rds of what the
government spends money on goes to people who are
entitled to it
1. ENTITLEMENTS: A claim for government
funds that cannot be abridged without violating
the rights of the claimant
EX: Social Security; Medicare Payments;
Veterans Benefits; Food Stamps; and
Interest on the National Debt (money owed
to investors in Treasury Bonds)
Reality: Government can change only about 1/3rd of the
federal spending in a given year
E. History:
 There was no federal budget before 1921
 No unified presidential budget until 1930’s – so the executive agencies went
directly to and dealt directly with Congress for their money
 The US has not had a national yearly budget approved by Congress since before
President Obama took office
5











F. Budget Process
Federal Government Fiscal Year starts on October 1 st
The Budget process starts 2 years in advance. While Congress debates the present fiscal year
budget, the executive agencies and departments estimate their needs for the next year and
submits a detailed budget request to the president for the next year
From September to December, the agencies review and estimate their needs for the next year
and prepare a budget request for their agency
The OMB (Office of management and the Budget) reviews each budget request and holds
executive branch hearings to give the agency heads a chance to make their case. The OMB
brings all budget requests into line with the president’s overall plan
OMB Director goes to president with a single, consolidated set of estimates of both revenue
and expenditures.
President reviews and adjusts these requests and prepares the BUDGET MESSAGE that
stresses the key aspects of the budget and his goals
Between the 1st Monday in January and the 1st Monday in February, the President submits his
budget and Budget Message to Congress – thousands of pages long!
It goes to the CBO (Congressional Budget Office) which reviews and approves an overall
budget resolution. By February 15th, the CBO presents its analysis to the House and Senate
Budget Committees.
By April 15th or no later than May, the Congress passes the FIRST BUDGET RESOLUTION
that sets the overall revenue and spending goals and the specific size of the federal deficit for
the next fiscal year.
By September, Congress sets binding limits on taxes and spending for the next fiscal year,
which begins on October 1st.
Once signed by the President, the appropriations bills come out in 13 installments but
SUPPLEMENTALS are also possible in the course of the year (See IRAQ WAR)
G. Major Budget Legislation
1.) 1985 BALANCED BUDGET ACT – GRAMMRUDMAN ACT
 GOAL: Put a cap on spending and reduce the federal budget to zero
 Senator Warren Rudman – it is a “bad idea whose time has come”!
 Each year from1986 to 1991, the budget would automatically be cut until the federal
deficit had disappeared
 Automatic cuts due to a Sequester Clause that required across-the-board % cuts in all
federal programs (except entitlements) if the president and Congress could not do
them together
 Congress had to set a ceiling for appropriations
 FAILED – “SMOKE AND MIRRORS”


2.) BUDGET ENFORCEMENT ACT OF 1990
(Supplements Gramm-Rudman) – 2steps to reduce
spending and deficit:
It imposed a CAP on discretionary (nonentitlement) spending. So long as the
president and Congress stay under the cap, they can change the amounts being spent
No Limit on Mandatory Spending but a “PAY AS YOU GO” POLICY so that if they
increased spending for one program then they had to cut another program
6
UNITED STATES BUDGET INFORMATION
2014 Budget - $3.8 trillion in spending offset by a projected $3trillion in
tax revenue
7
8
II. HOW DOES THE FEDERAL GOVERNMENT RAISE MONEY / REVENUE
1. What are the 2 main sources of government revenue?
TAXES – APPROXIMATELY 80%
BORROWING – APPROXIMATELY 20%
2.
DESCRIPTIONS OF TAXES:
A. What is meant by Progressive Taxes?
 The percentage of the tax increases as the person’s income increases – It is
based on a person’s ability to pay
 With higher income, you will pay higher tax RATE
B. What is meant by Regressive Taxes?
 A Tax that does not change with a person’s ability to pay the tax
 It impacts more severely on those with lower income
C. What is meant by Proportional Taxes?
 The percentage rate of the tax stays the same regardless of how much money
the person earns
 The dollar amount that a person pays in taxes will go up as your salary goes up.
3.
Income Taxes: A Tax on Income produced by a person or a business
A. It is largest single source of revenue for the federal government
B. Impact of the Income Tax: Progressive
C. What is INCOME? Any money that a person or a business receives
D. How is the Income Tax calculated?
Tax is levied on a person’s taxable income
E. Deadline for filing an Income Tax Return? April 15th every year
F. What is Taxable Income? Total Income minus deductions and personal exemptions
G. What is a Deduction? An item that reduces a person’s taxable income such as
charitable donations, mortgage expenses and property taxes
H. What is a Personal Exemption? An amount that reduces taxable income based on the
number of people dependent on the wage earner
I. What is a Dependent? One who depends primarily on another for necessities such as
food, clothing, and shelter
4.
Social Insurance Taxes (a/k/a Payroll Taxes):
A. Definition: Money the federal government collects to pay for major social programs
to help the elderly, the ill and the unemployed (Entitlements – mandatory)
-2nd largest source of federal revenue
B. Impact: Regressive and proportional
C. What is Social Security? Government sponsored retirement program and medical
care for retired persons
D. What is Medicare? Gov’t sponsored program of medical care for retired persons
under social security
E. What is Unemployment Compensation? A combined federal and state program to
help the unemployed. It is financed by a federal tax on the payroll of a business
F.
5.
How are these taxes collected? Employer and employees share equally in the tax
payment. The employer (withholds) deducts it from paycheck and matches it. The
employer sends tax to the Treasury Department and it is collected in a Special
Trustee Account
Excise Taxes: (Selective Sales Taxes)
A. Definition: A FEDERAL Tax on the manufacture, transportation, sale or
consumption of goods or on the performance of services
EX: gasoline, oil, tires, cigars, cigarettes, liquor, airline tickets
9
6.
B. Impact: Regressive
Customs Duties / Tariffs
A. Definition: Tax levied on goods imported into the United States
EX:
President Bush and the Steel Tariffs
Tariffs on textiles coming from Asia
B. Impact: Regressive
C. Why is this type of tax used? To raise revenue and/or to help protect US industry,
businesses, and agriculture from foreign competition
D. What are Protective Tariffs? High customs duties designed to protect or promote
domestic businesses
7.
Estate / Gift Taxes
A. Estate Taxes: FEDERAL Tax on value of assets of a person at their death
Tax applied after value of assets reached $600,000
B. Gift Taxes: Tax on gifts of money or value from a living person
$10,000 per person per year was not taxed
C. Impact: Progressive
It has been eliminated by the Bush Administration and Congress.
D. What was the purpose of these taxes?
To redistribute wealth of families and individuals
To raise revenue
8.
How does the federal government Borrow?
By selling federal securities to individuals, corporations, and other institutions
A. What is a Government Security?
A financial instrument that includes bonds, notes and certificates
B. Why would a person do this?
It is a safe investment and some interest is tax free
10
EVERYBODY’S FAVORITE SUBJECT
INCOME TAXES
I. WHAT IS INCOME?
“Income” refers to any money received by a person during a year, whether it
comes from business, occupation, investments or other sources.
II. WHAT ARE THE FEDERAL TAX RATES – HOW MUCH DO I OWE?
The largest source of income for the federal government is the Income tax. The
federal income tax is a progressive tax so the tax rate rises with the level of a person’s
income. Each person pays a set percentage of their income to the federal government. In
most cases, this tax is done as a “Withholding” meaning that the tax is WITHELD from
their pay by their employer. The federal tax rates are on a sliding scale / progressive
amounts running from a low of 10% to a high of 39.6%.
III. WHAT IS TAXABLE INCOME?
Generally, taxable income refers to an individual's (or corporation's) gross income
(total income / earnings), adjusted for various deductions allowable by statute (law).
Some deductions are automatic such as the standard personal deductions. See the
amounts below:
Filing status
Amount
Single
$6,100
Married Filing Jointly
$12,200
Married Filing Separately $6,100
The standard deduction is subtracted from the taxpayer(s) gross income to determine the
taxable income. Each taxpayer may also deduct personal exemptions for himself, his
spouse, and each child / dependent from his gross income. The personal exemptions
for 2013 are $3,900. As a result, taxpayers and their families can take the following off
of the top of their income to determine taxable income
Single Taxpayer = $3,900
Married Couple (or Single with 1 child) = $7,800
Married Couple with 1 kid (or single with 2 kids) = $11,700
Married Couple with 2 kids (or single with 3 kids) = $15,600
Married Couple with 3 kids (or single with 4 kids) = $19,500
Married Couple with 4 kids (or single with 5 kids) = $23,400
MATHEMATICAL FORMULA TO CALCULATE TAXABLE INCOME
GROSS INCOME – (TOTAL DEDUCTIONS + TOTAL EXEMPTIONS) =
TAXABLE INCOME
11
IV. MARGINAL TAX RATES
Progressive Taxes: Your Marginal Tax Rate for Federal Income Tax
The US Income Tax is a progressive tax. The higher a person’s income, the higher the tax rate.
However, you need to remember that fairness enters into the picture (I know you do not believe me but
it is true!). You may consider the amount of money you earn during a calendar year as one lump sum
that you call income. But the IRS looks at income in a different way: it charges you different tax rates
for different levels of your taxable income. That's because the U.S. income tax is a graduated tax,
designed so that people pay an increasing percentage rate as their income rises through various tax
brackets as outlined in the table below.
For a single person in 2013, in this tiered system, you pay 10% on the first tier of taxable income, the
next tier of earnings is taxed at 15%. After that, you pay 25% on the next tier. You pay increasing
percentages as your income rises, topping out at 39.6% on all income over $425,500.
Why is this important? You need to know this because the rate of tax you are paying on your highest
dollars of income is called your marginal tax rate, and it can have a tremendous impact on many of
your financial decisions. The marginal tax rate shows you just how profitable reducing your taxable
income (the income that you must pay tax on according to government tax law) can be. Below is a
listing of the federal marginal rates effective for 2013:
Tax Bracket
10% Bracket
15% Bracket
25% Bracket
28% Bracket
33% Bracket
35% Bracket
39.6% Bracket
Single
$0 – $8,925
$8,926 – $36,250
$36,251 – $87,850
$87,851 – $183,250
$183,251 – $398,350
$398,351 - $425,500
$425,501 +
Married Filing Jointly
$0 – $17,850
$17,851 – $72,500
$72,501 – $146,400
$146,401 – $223,050
$223,051 – $398,350
$398,351 - $450,000
$450,001 +
This is a new tax bracket based on changes made in the American Taxpayer Relief Act of
2012.
12
What's a flat tax?
By Jeanne Sahadi @CNNMoney October 24, 2011: 10:41 AM ET
NEW YORK (CNNMoney) -- Step aside 9-9-9. A new flat tax proposal is coming to town.
On Tuesday, Republican presidential candidate Rick Perry will propose an economic growth
package that includes a flat tax. “It starts with scrapping the three million words of the
current tax code, and starting over with something much simpler: a flat tax," Perry said last
week. Perry's not alone. In an email to supporters on Sunday another GOP presidential
hopeful -- Newt Gingrich -- said he would propose an "optional flat tax."
So what's a flat tax exactly? Typically it's proposed as a replacement for the income tax.
One tax rate: What makes a flat-tax system "flat" is that there is only one tax rate, whereas
today's system has a series of rates. And a flat tax includes an exemption based on family
size -- similar to today's standard deduction -- that everyone can take. In a pure flat-tax
system, that exemption would be the only tax break anyone gets. Today's tax code, of
course, has a complex array of tax credits, deductions and exemptions.
Flat-tax proposals can differ from one another in several ways: how high they set the rate;
how big they make the exemption, how many other tax breaks they allow and whether they
eliminate the payroll tax and the estate tax. But the more taxes a flat-tax system seeks to
replace and the more tax breaks it allows, the higher the rate must be to generate enough
revenue.
84% would pay more under Cain's 9-9-9 plan
Tax-free return on savings: Another key difference between a flat tax and today's income
tax is how the two treat savings. In a flat-tax system, interest, capital gains and dividends
are in essence tax-free. The goal is to only tax money once -- either when it is initially earned
or when it is withdrawn after being deposited or invested. Today's system is a "hybrid" in
that regard, according to tax expert William Gale.
Sometimes it only taxes savings once, such as when you use pre-tax money to invest in a
401(k) and pay taxes when those savings are withdrawn. But the current code also taxes
many capital gains, dividends and interest, although often at a lower rate than wage income.
Some people think that "any capital income tax is basically a 'double tax' on labor earnings,"
said economist Diane Lim Rogers of the Concord Coalition, a deficit watchdog group.
Would tax reform really lead to jobs?
13
That's because the income a person may use to make the investment has been taxed once
and then the money those investments generate is also taxed. "But to those who believe
that income is the proper basis of taxation, capital taxes aren't double taxes at all -- they're
just taxing capital income analogously to labor income," Rogers said. In the case of
dividends, there may be more of an argument that they're double taxed: They're taxable to
the shareholder who receives them, and they are not deductible from the profits of the
company that pays them.
The potential downside: So what's not to like about a flat tax?
Proponents promise that a flat tax will be simpler, fairer and better for the economy than
today's code. But that's not necessarily true. A lot will depend on the details. In terms of
simplicity, if the flat tax system has just one rate and one exemption, tax preparation likely
would be much simpler than it is today. Especially for businesses. They would be taxed at
one rate on gross receipts minus all outlays -- everything from wages to the purchase of new
equipment. Today, different types of business expenses are treated differently.
But even under a flat-tax system, lawmakers would still feel pressure to include breaks for
special groups. That could increase complexity and taxpayers' sense that it's always the
other guy getting a break. And a lot of adjustments may be needed to ensure a flat tax
doesn't hit the poor too hard.
In theory, the flat-tax exemption is designed to help reduce the tax burden on the lowestincome households, said Jim Nunns, a senior fellow at the Tax Policy Center. But that may
not be enough. To prevent the poor from getting saddled with a heavy tax burden, it may be
necessary to retain some tax breaks, such as the Earned Income Tax Credit.
Meanwhile, the wealthiest taxpayers would likely see their tax bills fall. "Certainly, highincome people will pay less," Nunns said. Indeed, critics are not convinced that a flat tax
would be better in terms of fairness or economic efficiency, especially once the costs of
transitioning to a new system are factored in. In fact, they say, those goals might be
achieved more readily by making smart changes to the current system -- for example, by
lowering income tax rates and eliminating many of the tax breaks.
Such a change doesn't have a catchy name. But it does have proponents on both sides of
the aisle in Congress.
--CNN's Steve Brusk contributed to this report.
First Published: October 24, 2011: 10:25 AM ET
14
III. SOURCES OF STATE REVENUE
1. Since the 1930’s, state government expenditures have risen dramatically. What are the causes of
this increase?
BECAUSE OF MANDATES – REQUIREMENTS IMPOSED ON THE STATE AND
LOCAL GOVERNMENTS BY THE FEDERAL GOVERNMENT WHICH HAVE TO BE
COMPLETED. SOMETIMES THESE ARE FULLY FUNDED, SOMETINMES
PARTIALLY FUNDED AND SOEMTIMES UNFUNDED.
EX: NCLB, ADA and the Clean Air Act
2. STATES AND TAX REVENUE –
A. Taxes make up ½ of the general revenue of the states.
B. TYPES OF STATE TAXES
1.) The Sales Tax – It is the MAJOR SOURCE OF REVENUE FOR
STATES
a.) What are the advantages of the Sales Tax?
 Easy to collect
 Painless to the taxpayer
b.) Problems? It is arguably regressive
2.) STATE INCOME TAX – It makes up about 30% of State Revenue.
 PA Income tax is 3.07%
3.) License Taxes – What are these taxes?
 Money paid to the state governments for the right to do things – such as
occupation licenses for lawyers, doctors, teachers, etc.
a.) What is the largest source for state license taxes?
 Drivers licenses and car registrations
4.) Severance Taxes – Tax on taking resources from the ground
5.) Inheritance or Estate Taxes – Tax on the value of an inheritance that one
receives from a decedent
6.) State Property or Personal Property taxes – Tax on personal property
C. OTHER SOURCES OF INCOME FOR STATES
1.) State Borrowing
a.) Why do states borrow money?
To pay for large or bigger projects – building projects for example
b.) How do states borrow money? Issue Bonds
(1) What is a Bond? A Financial security that the state must repay
2.) Lotteries
a.) What is a lottery? STATE SPONSORED GAMBLING
b.) How much money did lotteries bring in as of the early 1990’s?
15
http://www.cbpp.org/cms/index.cfm?fa=view&id=711
16
Local Casinos Are a Losing Bet
By Christopher Palmeri April
03, 2014
http://www.businessweek.com/articles/2014-04-03/casinos-close-as-revenue-falls-ingambling-saturated-u-dot-s#p1
The Harrah’s casino in Tunica, Miss., features a spa, three pools, a golf course, and a
shooting range. But there’s one thing the 18-year-old facility, the largest of 10 casinos
in the area, sorely lacks: gamblers. The northern Mississippi casino industry saw
gaming revenue shrink to $738 million last year from $1.2 billion in 2006. So
Harrah’s parent, Caesars Entertainment (CZR), will shutter the resort on June 2,
putting as many as 1,300 employees out of work. “There’s just too much supply in
that market,” says John Payne, president of Caesars’s central markets division, which
will concentrate on two other casinos it owns in Tunica. “The Harrah’s has not been
profitable for a while.”
17
The closing could be a sign of things to come as the $38 billion U.S. gambling
industry bumps up against two unlucky trends, a proliferation of casinos and stillskittish consumers in the wake of the financial crisis. Some 39 states have casino
gambling of some kind, up from only two in 1988, and more Las Vegas-style resorts
are on the way in New York, Pennsylvania, Massachusetts, and Maryland. “They
have saturation problems,” says William Thompson, a professor at the University of
Nevada at Las Vegas who studies the industry. “We have a wave of new casinos
coming.”
In January, New Jersey’s Atlantic Club Casino Hotel, formerly the Atlantic City
Hilton, shut its doors, a victim of increased competition in the mid-Atlantic region.
Gambling revenue in the Garden State has fallen 44 percent since its peak in 2006.
Five of Atlantic City’s 11 remaining casinos lost money on an operating basis in the
nine months through September, according to the state’s Division of Gaming
Enforcement.
Casino revenue fell in February for the sixth consecutive month in the four largest
Midwest gambling states, Indiana, Missouri, Illinois, and Michigan. Even in Las
Vegas sales are down 12 percent so far this year. On March 25, International Game
Technology (IGT), the world’s largest slot machine maker, said it would reduce its
global workforce by 7 percent, or 350 people, citing a decrease in its North American
gambling operations. “It’s been broad-based jurisdictionally, and the declines have
been greater than we had anticipated,” IGT Chief Executive Officer Patti Hart said
during a March 26 investors call. The company, which collects a share of money bet
on some of its leased machines, reported an 8 percent sales decline in that business in
the quarter ended in December.
Last year’s increase in payroll taxes appears to be crimping the budgets of many
gamblers. “Gaming can skew a little more blue-collar and middle-income, and if you
look at the national economic statistics, that’s a subset that remains challenged,” says
Joel Simkins, an analyst with Credit Suisse (CS). “We need a much more robust
economic climate for some of these markets to do better.”
The irony is that it was the economic downturn that prompted several states to expand
their gambling offerings as a way to increase tax revenue. Maryland voters approved
the state’s first casinos in a 2008 referendum. Massachusetts legislators joined them
in 2011. Illinois began rolling out slot machines in bars in 2012. New York voters
approved a maximum of seven resorts last year.
Financial projections have often been made with a gambler’s sense of optimism. Ohio
voters were told to expect more than $1.42 billion annually in gambling revenue
when they approved the state’s first four casinos in 2009. The take was $821 million
last year.
18
Ohio’s budget office issued a memo on March 19 warning local governments and
school districts, which receive the bulk of the state’s gambling tax revenue, to budget
conservatively and “not be surprised” when forecasts fall short. “Competition for
gambling dollars is increasing, both within and without the state, and there is
evidence across the nation that overall gambling may be approaching saturation
levels,” budget officials said. Hollywood Casino, a $400 million property in
Columbus, Ohio, began reducing its slot machine count two months after opening in
October 2012. Since then about 500 machines, or 17 percent of its total, have been
taken out because of weak demand.
Ameet Patel, general manager of the property, says the softness in casino revenue that
he and other operators have seen has been driven by a key demographic: women older
than 50 who used to bet $50 to $75 per visit. The weak recovery has squeezed their
gambling budgets, and their trips to casinos are fewer, he says. “The low end has been
wiped out,” he adds. Hollywood Casino’s owner, Penn National Gaming (PENN),
says it still expects returns of 20 percent on its new casino investments and is
pursuing projects in Pennsylvania and Massachusetts.
On the Las Vegas Strip, where $6.5 billion in gambling revenue for 2013 fell short of
the 2007 peak of $6.8 billion, casino operators are investing in non-gambling
amenities such as nightclubs, restaurants, and showrooms. The SLS Hotel & Casino,
a remodeling of the Sahara scheduled to open on Aug. 29, plans to draw only 30
percent of its revenue from gambling, says its president, Rob Oseland. That compares
with 45 percent at the average Nevada casino today and 62 percent in 1984, according
to UNLV’s Center for Gaming Research.
Internet betting, pitched as a savior for the established casinos in Nevada, New
Jersey, and Delaware that were given control of the online business in their states, has
been disappointing. New Jersey’s online wagering revenue was $10.3 million in
February, well below the $1 billion annual volume originally projected by Governor
Chris Christie’s administration. On April 1 the state estimated tax revenue from
Internet betting will be $12 million for the fiscal year ending in June, vs. a forecast of
$160 million.
In Nevada, which limits online betting to poker, revenue was $824,000 in February.
In Delaware, Internet revenue was $166,000. “It’s really not doing a hell of a lot for
the operators,” says H. Steven Norton, a former casino executive who now consults.
“Online gambling is going to hurt land-based games.” The betting squeeze is
particularly severe in older markets such as New Jersey and Mississippi, which have
seen both new competition and less spending by those who do come. Atlantic City,
which used to bus in 14 million visitors a year from New York, Pennsylvania, and
other parts of the state, brought in 2 million last year.
After Malaysian gambling giant Genting Group opened its Resorts World Casino at
the Aqueduct Racetrack outside New York City in October 2011, it quickly became
the nation’s top-grossing slot machine facility. In the past 12 months it’s taken in
19
$793 million. “Older markets like Connecticut and Atlantic City are being flanked by
new capacity closer to larger populations or just new—people want new,” says Credit
Suisse’s Simkins. “If you open something closer to their house that has the latest and
greatest slots and good parking, people are not going to the older locations.”
Tunica, less than an hour’s drive south of Memphis, drew visitors from across the
South and Midwest after the state allowed casino gambling in 1990. Once the thirdbiggest U.S. gaming market, Mississippi fell to sixth place by 2012, as casino revenue
in Louisiana, Indiana, and Pennsylvania climbed. Locally, the fall was sobering. Says
Webster Franklin, who runs the Tunica Convention and Visitors Bureau: “When the
largest casino operator in the country closes its premier property in your state, if
that’s not a wake-up call, I don’t know what is.”
The bottom line: Today 39 states have casino gambling of some kind, up from only
two in 1988. That’s hurt business at older facilities.
20
IV. LOCAL GOVERNMENT TAXES AND REVENUE
1. SOURCES OF REVENUE FOR LOCAL GOVERNMENTS
A. PROPERTY TAX
(1) Define the property tax – A TAX ON THE PROPERTY ONE OWNS
1.) Real Estate or Real Property Taxes
2.) Personal Property Taxes
(2) Property taxes are the MOST IMPORTANT SOURCE of revenue for local
governments (approximately over 2/3 rds of all local revenue)
(3) Arguments in favor of the Property Tax
 It is an even / stable revenue flow for local governments. It is not subject to
economic fluctuation like income or sales taxes.
 It allows local governments and citizens of localities a degree of control over
their own affairs. It makes the locality more independent.
 They protect the continuity of basic services provided by local governments
such as police and fire departments, health and building codes, libraries, streets,
parks, and schools.
(4) Arguments against the Property tax
 Property taxes are regressive and impact harshly on the elderly.
 The value of real estate is not a key element in a person’s income. Are you
retired and living on social security??? It is wrong to tax unproductive items.
Bricks and cement make no income.
 Taxpayers with no school age children have a tax obligation with no direct
benefit.
 It is a system of unfair and corrupt assessment practices. It is difficult to
determine property values on a fair and equal basis.
(5) Calculating the Property Tax – See Addendum attached to Packet
B. Local Income Tax – generally 1% of Gross Income BUT GOING UP AS EITHER PIT OR EIT
C. Sales Taxes – 15 states use this form of tax for generating local revenue
It is usually a selective sales tax
D. Fines and Fees
-Traffic and summary criminal offenses
-Other violations
-Licenses for Hunting, Fishing, occupation, Marriage, Divorce, etc.
-Fees for access to the court system
-Special Assessments: Fees that property owners must pay for local services such
as
installing sidewalks, public water, and public sewer
E. Government Owned Businesses – EX: Parking Garages
F. Borrowing Money – in the form of Bonds which are certificates to repay money with interest
G. Intergovernmental Revenue – economic aid from the state and federal governments
21