CHAPTER TWELVE TAX AND SPENDING. Copyright © Houghton Mifflin Company. All rights reserved.12 | 2 The Principles of Finance Interdependence Diversity.

CHAPTER TWELVE

TAX AND SPENDING

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 2

The Principles of Finance

• Interdependence

• Diversity

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 3

Table 12.1 State and Local Taxes as a Percentage of Income

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 4

Revenues

• Criteria for Evaluating Taxes

– Equity

– Yield

– Elasticity

– Ease of Administration

– Political Accountability

– Acceptability

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 5

Revenues (continued)

• Major State and Local Taxes

– Property Tax

– Sales Tax

– Income Tax

– Miscellaneous Taxes

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 6

Figure 12.1 Distribution of Total State and Local Tax Revenue by Source, 2004

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 7

Table 12.2 Rating State and Local Taxes According to Six Criteria

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 8

Revenues (continued)

• User Fees

• Severance Tax

• Gambling: Lotteries and Casinos

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 9

The Political Economy of Taxation

• Spending

• Tax Revolt

• Fiscal Stress

• Limited Discretion

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 10

Figure 12.2 Total State and Local Spending by Area

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 11

Borrowing and Debt

• Estimating Revenues

• Rainy Day Funds

• Other Financial Management Practices

– Long-term Borrowing

– Limits on Borrowing

Copyright © Houghton Mifflin Company. All rights reserved. 12 | 12

Where All the Money Goes: State and Local Spending

• Economic Development

• Education Policy

• Social Welfare and Health Care Policy