Speaking Notes

PADM 5301

February 9, 2010

Dr. Neubauer

 

WHERE WE ARE:

 

 

REVIEW FROM LAST WEEK

 

1)         What does it mean to say that a tax is PROGRESSIVE.  Who does it "hit" at higher rates?

 

2)         Why is the federal income tax not nearly as progressive as it was originally designed to be?

 

3)         What was the original intent behind the federal Alternative Minimum Tax?

 

4)         What are the two major sources of revenue for the federal (national) government in the United States?

 

5)         Why is the national government not in a good "position" to make detailed decisions regarding spending decision in local communities?

 

6)         What are some major sources of government revenue (generally) in addition to taxes?

 

7)         What is argument that fees are "fairer" than taxes?  What is the difference between a tax and a mandatory fee?

 

8)         What is the argument for financing at least part of the costs of universities from general tax revenues?  What is the argument for financing at least part of the costs of universities from tuitions?

 

9)         What are the major revenue sources of most state governments in the United States?  Why is it relatively easy for state governments to ADMINISTER state personal income taxes?

 

10)       What is an excise tax?  Why are excise taxes hard to ADMINISTER?

 

11)       How do citizens judge a tax?  In other words, what are criteria of a "good" tax?

 

12)       If the intent is to raise money, why is it not so good to tax something that is PRICE ELASTIC?

 

13)       If the intent is to modify behaviors, why is t not so good to tax something that is PRICE INELASTIC?

 

14)       Make the argument that tobacco products are price inelastic.

 

15)       Make the argument that tobacco products are price elastic.

 

16)       Make the argument that state lotteries are a good source of government revenue.

 

17)       Make the argument that state lotteries are a bad and regressive source of state revenue.

 

18)       How does modern technology facilitate the ADMINISTRATION of sales taxes?

 

19)       In a location where tourism is significant, make the argument that hotel taxes and sales taxes are "good."

 

20)       In a location where tourism is significant, make the argument that hotel taxes and sales taxes are "bad."

 

21)       What is the idea behind "earmarking" revenues for particular uses?  Why does earmarking tend to be a bit of a deception?

 

22)       Why are (real) property taxes difficult, controversial and costly to ADMINISTER?

 

23)       Why are local property taxes usually based on "assessed value" rather than estimated market value?

 

24)       How do local governments set the mill rate?

 

25)       If citizens are aware of costs of public services are they more or less likely to use initiative and referendum to cap or reduce taxes?

 

26)       Why are the POLITICAL aspects of public financial administration (such as requirements to put purchases out for bids) likely to run counter to the ADMINISTRATIVE aspects of public financial administration (such as efficiency and effectiveness)?

 

NEW MATERIAL

 

Chapter 5 appears to be an extension of the material in Chapter 4 regarding sources of revenues for governments.

 

FROM MACRO ECONOMICS -- supply curves and demand curves

 

"Macro" refers to the view of the system from above.

 

 

source: Wikipedia.org -- "demand curve"

 

The point is, that if the price for something goes up (on the same demand curve) the amount of it "demanded" usually goes down. 

 

If the demand curve is very steep (looks like an "I") the amount "demanded" remains about the same, no matter what the price. 

 

If the demand curve is very flat (looks like a gentle downward slope), an increase in price is likely to cause a substantial decrease in "demand."

 

What are the implications if the intend is to tax something solely for the purpose of raising revenue for government?  Answer: If the demand for something IS PRICE SENSITIVE (relatively inelastic) by taxing it you are going to drive down conception of it and probably not realize as much money as hoped.

 

What are the implications if the intent is to tax something primarily to change behavior (to discourage smoking, for example)?  Answer: If the demand for something IS PRICE SENSITIVE (relatively inelastic) by taxing it you are going to drive down conception of it.  If your intent is to MODIFY BEHAVIOR the tax may be a "good" way to do so, although this tax may not raise much revenue.

 

THE TOBACCO SETTLEMENT MONEY

 

http://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agreement

 

The tobacco settlement can be viewed as a good thing or as the tobacco industry's way to "addict" state and local governments to a flow of revenues and to "roll" the associated costs into the prices of their products.

 

BIG THREE SOURCES OF STATE REVENUES

 

FUTURE TRENDS REGARDING SALES TAXES SAID TO NOT BE GOOD

 

EXCISE TAXES can be hard/costly to collect but can be EARMARKED to specific needs.

 

EARMARKED money should not be allowed to SUBSTITUTE for money that a specific program would otherwise receive.  Otherwise, the earmark is largely a "show."

 

TOLLS for roads and bridges are common in some states.  There are ways to make them less annoying for motorists (electronic scanning) and to make adjustments for local people who may have no choice but to use a particular road or bridge.

 

Governments can sometimes BORROW to deal with temporary CASH FLOW PROBLEMS.  Borrowing for CAPITAL PROJECTS is common and makes sense because future generations will (hopefully) benefit from major capital projects.

 

SPORTS ARENAS are frequently financed by complex cooperation among public and private stakeholders.  This is likely to involve the issuance of MUNICIPAL BONDS.

 

LEGALIZED GAMBLING is problematic because it is hard to justify the use of government money to advertise to people who may become addicted to gambling.  Success in one way may lead to social problems and crime in other ways.  Private lottery operators may be very aggressive in marketing gambling without regard for possible social costs.

 

REGARDING REVENUE PROJECTIONS -- "In general, there seems to be a tendency to underestimate revenues more often than to overestimate them."  There is always AN UNCERTAINTY FACTOR here.  Given the aversion of citizens to higher taxes perhaps it is "just good politics" to guess a little low than a little high.