Taxing & Budgeting

1. Taxing & Budgeting Chapter 12 Maxwell & Crain PPT by Teresa Nevárez

2. Taxing & Budgeting • Texas has the 3rd largest state budget • State spending has grown at an average annual rate of 1.8% since 1994 Sources of Estimated State Revenues, 2008-2009 Budget Period

3. Taxing & Budgeting Taxation • National Taxes: • The individual and corporate income taxes are the national government’s major source of funding • State Taxes: • Property taxes were once the major source of state revenue • Major sources of state funding come from the following • General sales taxes • Selective sales taxes • Gross receipts taxes

4. Taxing & Budgeting Taxation (cont.) • Local Taxes • Local taxes are higher than in many other states • Property taxes are the major source of revenue The Politics of Taxation • The Tax Base is the object or activity being taxed • Regulatory taxes are a tool for social or economic control that reduce taxes on approved behavior or impose higher taxes on undesirable behavior • Benefits received taxes are taxes imposed on services received by the payers

5. Taxing & Budgeting • The Politics of Taxation (cont.) • Ability to pay taxes are taxes apportioned according to taxpayers’ financial capacity • The tax rate is the amount per unit of taxable item or activity • Progressive tax rates increase a the base increases • Regressive tax rates decrease as the base increases imposing a greater burden on low- and middle-income taxpayers than on wealthier ones • The declining marginal propensity to consume is a tendency, as income increases, a person saves and invests more, thus spending a smaller percentage of that income

6. Individual Income Tax Rates for Single Individuals, 2008

7. Texas general sales tax paid in dollars and as a percentage of taxable income, 2007

8. Taxing & Budgeting • The Politics of Taxation (cont.) • Tax shifting: when taxes increase, business’ raise price of their services/products shifting burden on consumers • Supply-side economics is the theory that suggests that higher-income taxpayers should be taxed less because their savings and investments stimulate the economy • Other Revenues • Federal Grants in Aid represent about 30% of Texas’ state revenues • Categorical grants are federal money that is given for a specific purpose • Block grants are federal money that is to be spent with fewer restrictions

11. Taxing & Budgeting Other Revenues (cont.) • Borrowing: Texas constitution limits state borrowing but is less restrictive on local governments • General obligation bonds are bonds to be repaid from general taxes and other revenues • Revenue bonds are bonds to be repaid with the revenue from the service they finance Other Sources of Revenue • Lottery • Various licenses • Fines • Leasing of public lands

12. Taxing & Budgeting The Budgetary Process • Typically the central budgeting agency is found within the executive branch • In some states, the budget is prepared jointly by the legislative and the executive branches • In Texas, the Legislative Budget Board (LBB) and the governor’s office jointly prepare forms on which the state’s operating agencies submit their budgetary requests • Joint hearing are held • Nonetheless, staff make independent proposals and 2 budgets are prepared

13. Taxing & Budgeting • The Appropriations Process • The legislature legally authorizes the state to spend money • The recommendations of the LBB carry greater weight than those of the governor • The governor’s most effective influence in the spending process results from the line-item veto • Line item veto may be overridden by 2/3 vote of the legislature • In practice, line item vetoes are very difficult to override • Many legislators engage in logrolling to get their local projects funded