|Give an example of a progressive tax?||
U.S. income tax- Rate of taxation rises with income
|Why is federal property not taxed?||
It would violate the efficiency principle. There would be an administrative cost of assessing and collecting the tax, simply to pass money from one government account to another.
|Name the greatest challege in a real property tax system?||
The greatest challege in a real property tax system is appraisal and assessment. The property must be appraised to determine market value; it must be reappraised periodically; the appropriate assessment ratio (percentage) must be applied. Then, the tax reate is applied to assessed value. This process is technically challenging and politically sensitive
The other challege is the collection of the tax.
|Steve just bought a home and is calculating his future property tax bill. Calculate the tax using a tax rate of 18 mills and home value of $160,000.||
1 mill = 1/10 of a percent
18 mills = 1.8%
160,000 x .018 = $2,880
|Define "restructuring debt".||
Entities restructure debt when they issue new debt at lower interest rates to pay off older debts at higher interest rates. They do it for the same reason homeowners refinance their mortgage, to save money.
|What debt instrument would be used when several governement entities participate in a lease-purchase agreement?||
Certificates of participation. Like long-term leases, certificates of participation are an alternative to traditional bond financing. The "participants" are investors who purchase, not a bond, but the right to participate in the income stream from the lease payments.
|How are self financing, special purpose governments funded?||
User fees. They provide a service and charge for it such as utilities.
|What must tax policies address?||
Why to tax, what to tax, who to tax, and how to administer the tax as well as the tax rates.
|Name different types of government grants.||
|How is government borrowing constrained?||
Through constitutions and statutes, bond covenants and debt policies.
|Describe tax equity.||
Tax equity continually reappears in tax policies. It is the principle that taxes should treat taxpayers fairly. When applied to income taxes, horizontal equity means different taxpayers with the same income level should pay the same amount of tax. Vertical equity means taxpayers with different incomes levels should pay different amounts of tax.
|Identify some different tax considerations.||
Ability to pay
Benefit received- is it worth establishing a new tax or raising existing taxes.
Collection efficiency- cost of collecting the tax should be minimal compared to the revenue generated.
Social and economic goals- social security tax for example ensures a minimum level of income for elderly citizens
Tax expenditures- exceptions to tax laws and regulations are called tax expenditures because they "cost" the public in terms of lost revenue.
Dedicated tax- a dedicated tax is leveied for a specific purpose and the proceeds are deposited into an account restricted to that purpose.
|What are the main sources of revenue for federal, state and local governements?||
Income taxes are the major source of revenue for the national government an dmost states. Levied on both individuals and corporations.
Sales taxes and property taxes are the two main sources of revenue for local governments.
|Describe income tax characteristics.||
Broad based taxes
Graduated tax rates, exemptions and deductions are applied to enhance horizontal and vertical equity
Usually progressive tax
Payroll taxes such as social security and medicare are not classified as income taxes, however within a broad range of income they are proportion to income thus considering it a regressive tax.
|Advantages to income taxes.||
Less costly to administer than other taxes.
Compliance levels tend to be high
Income taxes respond to general economic conditions such as inflation and recessions
|Decribe real property taxes||
Most familiar form of a wealth tax
Greatest challenge to the real property tax system is the appraisal and subsequent assessment of property values
Rates usually expressed in mills (1/10 of a cent or 1/1000 of a dollar)
|Describe Personal Property tax.||
Similar to real property however personal property is mobile or can be transferred between locations.
Business pay personal property tax on such items as furniture, tools and farm equipment however some smaller tools may be exempt.
|Describe intangibles tax.||
Many assests are subject to an intangibles tax.
Include assets such as stocks and bonds, savings accounts and trademarks.
Tend to be highly controversial
|Describe estate and inheritance taxes.||
Estate taxes and inheritance taxes are taxes on wealth.
One of the oldest forms of taxaction.
Federal government only levies the estate tax
Some states levy both.
|Describe Consumption taxes.||
Consumption taxes are an important source of revenue to most states and many local governments. While consumption taxes are regressive, some argue they provide a degree of "fairness."
Examples include sales, use, excise and value added taxes.
|Describe Sales Tax.||
Most common consumption tax
General sales taxes are deposited into the general fund while dedicated sales taxes such as gasoline may be deposited into a special fund.
Certain items such as food consumed off the premise and childrens clothes are often excluded to mitigate the regressive nature of sales taxes
May be imposed by governments at any level, though a local government cannot impose sales tax unles authorized to do so by the state.
|Describe Use Tax.||
Charged on goods purchased from out-of-state and used within the state.
Substitute sales tax
Disadvantage is the reliance of voluntary compliance, especially for individual taxpayers.
|Describe excise tax.||
Applied to the consumption of a particular type of good, or to participation in a certain type of activity.
Usually paid when purchases are made and may be included in the price (gasoline)
Sometimes imposed on occupations, licenses and for enjoyment of certain privilages.
May be paid in conjuction with building permits, dump fees and even parking spaces
Advantage is that they link taxation to specific services and often used to fund specific things. Gasoline to highway funds.
The first form of intergovernmental financing. They are voluntary arrangements entered into for the mutual benefit of both entities. Common contracts between local governments or state and local governments often define joint use of buildings and equipment and facilities.
|Describe Category Grants.||
Can be classified as formula grants or discretionary grants.
Can only be used for activities in a specific category of purpose.
|Describe formula grants.||
Amount based on a formula contained in law or regulation. (Factors include: Population, per capita income, degree of substandard housing.)
Many education grants are formula grants.
Amount received based on eligibility requirements satisfied.
|Describe Discretionary grants.||
Transfer funds to be used for a specific purpose
Awards are up to the discretion of the entity providing the funds
Awards based on subjectivity, amount of funding and quality of proposals.
|Describe Block Grants.||
Transfer funds for broadly defined purposes
A single block grant may provide funds for several related activities
Contain comparatively few requirements for how money is spent offering maximum flexibility to the state and local govts.
|Describe Shared Revenues.||
Usually associated with revenue sharing between state and local governments.
Most instances, shared revenue funs are provided with few constraints so that local entities have maximum flexibility.
Often provided per a formula, such as population per county or miles of road per county.
|Describe some Grantor expectations.||
Accountability- Comply with terms, end receipients are eligable receipients
Proper control and management of transactions
May expect recipient to comply with certain cross-cutting requirements. This refers to broad goals of the grantor that are not directly related to the purpose of the grant.
For example recipients may be required to uphold certain civil rights and environmental protection objections.
|Descibe some other forms of revenue.||
License fees- often associated with business activity
User fees- charged imposed on specific beneficiary of a good or service. Used to fully or partially recover costs and expand services without raising taxes.
Donations- Voluntary contributions that confer no rights or benefits to the giver
Lotteries and Gambling
Investments- See Investments Flashcard
|Describe some investment characteristics.||
Most entities establish investment policies that define the type and grade of investment vehicles eligible for public funds. Many states sponsor Local Government Investment Pool that operates like a mutual fund. Government Finance Officers Association publishes guidelines for investment pools.
|Describe the purpose of debt.||
Most common purpose for state and local levels is to fund capital improvements
May also be used to provide interim financing in anticipation of future receipts. Tax anticipation notes (TANs), Revenue Anticipation notes (RANs) or Grant Anticipation nots (GANs)
Issue new debt that allows them to pay off existing debt at more favorable interest rates.
Advanced refunding- New debt proceeds are used to buy securites that are placed in escrow. The interest is used to pay of old debt.
U.S. Constitution allows the govt to use debt to fund current operating expenses.
|Debt limitations and Covenants||
All governments are limited as to the amount of debt they can incur. For state and local govts the debt limit is establised in the constitution or in statutes.
Covenants are legal requirements pertaining to a specific bond issue. Typically define the maturity date and revenue stream that will be used to repay the debt, the interest rate and repayment schedule.
|What are the three E's of Government Debt?||
Equity- Repayment of debt should be borne by those benefiting from the project.
Effectiveness- The debt issue should provide sufficent funds for the project.
Efficiency- Loaned funds should be obtained at the lowest cost possible relative to the risk.
|Describe General Obligation Bonds.||
Secured by the full revenue base of the issuer. "Full faith and credit"
Are more likely to be subject to debt limits
Used to fund projects that benefit all citizens served by the government.
Lower interest rates than revenue bonds
Generally require voter approval
|Describe Revenue Bonds.||
Secured by a specific source of financing, such as revenue from the project being funded or a dedicated tax.
Usually higher interest rates
|Describe term bond, serial bond and warrant.||
Term bond- is a large block of bonds maturing in a single year, usually many years after issuance. Usually associated with a sinking fund.
Serial Bond- features maturities every year, annually or semi-annually.
Warrants- Governments may use warrants to pay off debt. It is is an order by authorized executive official that directs the treasury to pay a specific sum to the bearer. Similar to a check.
Generally short term but play a supporting role in long term financial management.
Short-term notes may be used as a financial management tool in anticipation of other revenue. (BAN and RAN)
Lower interest rates than bonds
|Describe Certificates of Participation||
Like long-term leases, certificates of participation are an alternative to traditional bond financing.
Participants are investors who purchase the right to participate in the income stream.
Typically financed through a financial institution and the lease payments are to the institution which provides the investors a share of the payments.
Asset may transfer to the govt when the lease term ends.
|Describe some credit rating factors.||
Covenant or details of the individual issue
Debt management issues