Tax revenue
Encyclopedia
Tax revenue is the income
that is gained by government
s through tax
ation.
Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency
that collects the tax may not be part of central government, but may be an alternative third-party licenced to collect tax which they themselves will use. For example:
Tax revenues on purchases can come from two forms: 'tax' itself is a percentage of the price added to the purchase (such as sales tax in US states, or VAT in the UK), while 'duty
' is a fixed amount added to the purchase price (such as is commonly found on cigarettes). In order to calculate the total tax raised from these sales, we must work out the effective tax rate multiplied by the quantity supplied.
. Where goods have a low elasticity of demand (they are price inelastic), an increase in tax or duty will lead to a small decrease in demand—not enough to offset the higher tax raised from each unit. Overall tax revenue will therefore rise. Conversely, for goods which are price elastic, an increase in tax rate or duty would lead to a fall in tax revenue.
theorises that, even for price inelastic goods (such as addictive necessary items), there will be a tax revenue maximising point, beyond which total tax revenue will fall as taxes increase. This may be due to a number of causes:
Personal Income Tax Sales Tax Property Tax Corporate Tax
total revenue total revenue total revenue total revenue
The averages of each tax base can be used in comparison to other states or communities, that is, the average of other states or communities, to determine whether or not a government compares favorably regionally or nationally. A state or community's standing on these various bases may affect its ability to attract new industry. The resulting rates, high or low in comparison, can become targets for change.
The mission of revenue administration is to provide prudent and innovative revenue, investment and risk management and to regulate the use of government capital.
There are four core responsibilities for the revenue administrator:
1. Manage and invest financial assets prudently.
2. Administer tax and revenue programs fairly and efficiently.
3. Manage risk associated with loss of public assets.
4. Regulate capital expenditures.
Example of Balance: The Conflict of Economic Development and the Tax Base
New real estate development may not only enhance the economic base of a state or community, and it may also expand the tax base. It is not always the case, however, that new developments, especially if not properly planned, can in the aggregate, have a negative impact on the tax base. Economic development traditionally focuses on such things as job generation, the provision of affordable housing, and the creation of retail centers. Tax base expansion focuses primarily on maintaining and enhancing real estate values within the municipality. Municipalities tend to pursue economic development with almost a religious fervor, and often do not think strategically about the overall real estate impacts of their economic development initiatives. Yet the existing tax base in almost every municipality throughout the United States is an important source of revenue for funding municipal and school expenditures.
For public sector officials it is important to recognize the potential for a conflict between these two distinct, yet overlapping areas of public policy, and to establish procedures to achieve the proper balance in this regard. For real estate investors it is important to recognize when public policy is not fully cognizant of the impact of its actions on the real estate market, because of the potential negative impact on property values.
In summary, the concept of tax base management is really one of asset management and is particularly important in States where municipalities derive much of their revenue from their real estate assessments. City officials in Concord, New Hampshire
found that a five percent overall increase in the assessed value of existing property would have the same impact on the tax rate as the addition of 2000000 square feet (185,806.1 m²) of new industrial property or 1000000 square feet (92,903 m²) of new office/R&D development, both of which are likely to take fifteen or more years to realize.
In addition to being responsible for managing the tax base, a community should also be responsible for helping to ensure economic prosperity for its citizens. These two goals can be in conflict unless a long-term view is taken regarding public policy actions, and unless the impact of alternate development actions and programs and priorities are not carefully evaluated. Good tax base management may lead to even better economic development, because investors and businesses will want to be in a community. Instead of offering incentives to attract business, they may be willing to pay to come to a community because it’s a good place to live, work, shop and play.
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
that is gained by government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
s through tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation.
Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency
Government agency
A government or state agency is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an intelligence agency. There is a notable variety of agency types...
that collects the tax may not be part of central government, but may be an alternative third-party licenced to collect tax which they themselves will use. For example:
- In the UK, the DVLA collects vehicle excise dutyVehicle excise dutyVehicle Excise Duty is a vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used on the public roads in the United Kingdom...
, which is then passed onto the treasury.
Tax revenues on purchases can come from two forms: 'tax' itself is a percentage of the price added to the purchase (such as sales tax in US states, or VAT in the UK), while 'duty
Duty (economics)
In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...
' is a fixed amount added to the purchase price (such as is commonly found on cigarettes). In order to calculate the total tax raised from these sales, we must work out the effective tax rate multiplied by the quantity supplied.
Changes in taxation level
The effect of a change in taxation level on total tax revenue depends on the good being investigated, and in particular on its price elasticity of demandPrice elasticity of demand
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price...
. Where goods have a low elasticity of demand (they are price inelastic), an increase in tax or duty will lead to a small decrease in demand—not enough to offset the higher tax raised from each unit. Overall tax revenue will therefore rise. Conversely, for goods which are price elastic, an increase in tax rate or duty would lead to a fall in tax revenue.
Laffer curve
The Laffer curveLaffer curve
In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity . The curve is constructed by thought experiment...
theorises that, even for price inelastic goods (such as addictive necessary items), there will be a tax revenue maximising point, beyond which total tax revenue will fall as taxes increase. This may be due to a number of causes:
- A cost limit on what can actually be afforded
- The existence of expensive substitutes (which become less expensive)
- An increase in tax evasion (through the black market or similar)
- The shrinking of business caused by increased taxes
Public Sector
A limiting factor in determining the size of a budget in the public sector is the capacity to tax. Per capita personal income(PCI) is the most often used measure of relative fiscal capacity. But this measure fails to base tax capacity computation on other important tax bases like the sales and property tax and corporate income taxes. A representative tax system should assess the level of personal income, the value of retail sales and the value of property to compute fiscal capacity. To do so the average tax rate for each base is computed by dividing the total revenue derived by the total value of the base. Thus, as an example, income taxes collected would be divided by total income to yield a rate of taxation.Personal Income Tax Sales Tax Property Tax Corporate Tax
total revenue total revenue total revenue total revenue
The averages of each tax base can be used in comparison to other states or communities, that is, the average of other states or communities, to determine whether or not a government compares favorably regionally or nationally. A state or community's standing on these various bases may affect its ability to attract new industry. The resulting rates, high or low in comparison, can become targets for change.
The mission of revenue administration is to provide prudent and innovative revenue, investment and risk management and to regulate the use of government capital.
There are four core responsibilities for the revenue administrator:
1. Manage and invest financial assets prudently.
2. Administer tax and revenue programs fairly and efficiently.
3. Manage risk associated with loss of public assets.
4. Regulate capital expenditures.
Example of Balance: The Conflict of Economic Development and the Tax Base
New real estate development may not only enhance the economic base of a state or community, and it may also expand the tax base. It is not always the case, however, that new developments, especially if not properly planned, can in the aggregate, have a negative impact on the tax base. Economic development traditionally focuses on such things as job generation, the provision of affordable housing, and the creation of retail centers. Tax base expansion focuses primarily on maintaining and enhancing real estate values within the municipality. Municipalities tend to pursue economic development with almost a religious fervor, and often do not think strategically about the overall real estate impacts of their economic development initiatives. Yet the existing tax base in almost every municipality throughout the United States is an important source of revenue for funding municipal and school expenditures.
For public sector officials it is important to recognize the potential for a conflict between these two distinct, yet overlapping areas of public policy, and to establish procedures to achieve the proper balance in this regard. For real estate investors it is important to recognize when public policy is not fully cognizant of the impact of its actions on the real estate market, because of the potential negative impact on property values.
In summary, the concept of tax base management is really one of asset management and is particularly important in States where municipalities derive much of their revenue from their real estate assessments. City officials in Concord, New Hampshire
Concord, New Hampshire
The city of Concord is the capital of the state of New Hampshire in the United States. It is also the county seat of Merrimack County. As of the 2010 census, its population was 42,695....
found that a five percent overall increase in the assessed value of existing property would have the same impact on the tax rate as the addition of 2000000 square feet (185,806.1 m²) of new industrial property or 1000000 square feet (92,903 m²) of new office/R&D development, both of which are likely to take fifteen or more years to realize.
In addition to being responsible for managing the tax base, a community should also be responsible for helping to ensure economic prosperity for its citizens. These two goals can be in conflict unless a long-term view is taken regarding public policy actions, and unless the impact of alternate development actions and programs and priorities are not carefully evaluated. Good tax base management may lead to even better economic development, because investors and businesses will want to be in a community. Instead of offering incentives to attract business, they may be willing to pay to come to a community because it’s a good place to live, work, shop and play.