Financing State Government Chapter 12 Financing State Government

Analyze issues and policies of Texas. Upon completing this chapter, you will be able to… Analyze issues and policies of Texas.

Why Do Governments Provide Services to Citizens? “What should government do?” Reasons for provision of services Comptroller’s Certification Key terms: political values public goods nonexcludability nonrivalrous consumption collective benefit redistributive goods regulatory goods

CORE OBJECTIVE Thinking Critically… What goods and services do you think state governments should provide? Consider the consequences of your answer. What would the possible impact to society be, given your position?

Sources of State Revenue Key terms: tax capacity tax effort per capita tax tax exporting consumer taxes Per Capita Taxes State Taxes in Texas Texas $2,050

See it yourself

Equity in Taxes Consumer taxes (gas, non-food items, prepared foods) Business Franchise Tax Comptroller Site Key terms: benefit-based taxes ability to pay regressive taxes progressive taxes proportional taxes tax base

Being Socially Responsible… CORE OBJECTIVE Being Socially Responsible… Texas taxes prepared food items, but does not tax unprepared food items (e.g., raw meats and fresh produce). How does taxing prepared food impact our state’s poorest citizens?

Equity in Taxes Tax Shifting Businesses will shift the tax to the consumer through higher prices Businesses will shift the tax to the employees through lower wages or benefits Businesses will absorb the tax and pay smaller returns to the investors Key terms: tax shifting tax incidence

Debt in Texas

Local Taxes Comparison of State and Local Tax Revenues Dependence on property tax Texas has the 9th highest rate in the nation Local tax revenues 50.9% of total collected in state

Nontax Revenue Sources Service charges and fees State lottery Federal aid The Budget “Fix” Key terms: nontax revenue earmarked revenue discretionary funding

Communicating Effectively… CORE OBJECTIVE Communicating Effectively… Consider Table 12.6, which illustrates how specific appropriations are restricted. What percentage of funds is not restricted? How does restricting funds impact budget flexibility?

Expenditures: Where the Money Goes Education Roughly 38% Health and welfare Roughly 37% Transportation Public safety

Continuing Issues in State Finance in Texas Tax Structure Is There a Personal Income Tax in the Future for Texas? According to the data, states without income taxes rely more heavily and tax more than states with an income tax States with no income tax grow faster Key terms: income-elastic taxes franchise fee

Taking Personal Responsibility… CORE OBJECTIVE Taking Personal Responsibility… Although few individuals would express a preference for higher taxes, given the information in this chapter about the goods and services the state provides and the revenue data presented in Figure 12.8 and Table 12.7, should Texans advocate for a personal income tax? Why or why not?