1. Politics in States and Communities (15 Ed.)
Thomas Dye and Susan MacManus

2. The Politics of Taxation and Finance
Chapter 14
The Politics of Taxation and Finance
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3. Learning Objectives
Describe how much money federal and state governments spend, discuss the extent to which spending has increased over time, and compare spending patterns between local and state governments.
Compare and contrast state and local property taxes, sales taxes, excise taxes, and income taxes; evaluate whether each of these taxes is progressive, regressive, or proportional; and describe other revenue sources for state and local governments.
Discuss the differences in tax policy among the states, and explain what accounts for these differences.
Describe Americans’ attitudes about taxes, various mechanisms that are sometimes used to limit taxes, and the impact of such tax limits.
Outline the sources of fiscal stress in state and local governments, and assess how efforts to relieve this fiscal stress impact citizens.
Describe legal restraints on state and local government debt; explain how state and local governments can undertake capital projects nonetheless by issuing bonds; compare and contrast general obligation, revenue, and industrial development bonds; and discuss how the federal tax code treats income from different types of bonds.
Describe what happens when a local government faces bankruptcy, and assess the financial health of U.S. cities in the wake of the Great Recession.
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4. An Overview of Government Finances
The federal government spends $3.5 trillion annually, state and local governments an additional $1.6 trillion.
Growth of government spending: Gross domestic product (GDP) is the total value of all the goods and services produced in the United States in a year; a measure of the size of the U.S. economy
State and local government spending: State and local governments direct most of their spending toward education, social services (welfare and health), public safety (police and fire), and transportation; spending patterns are different between states and local governments
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5. Types of Taxes and Politics
Local property taxes: Largest source of revenue for local governments; are usually regressive
State sales taxes: Most important source of revenue for state governments
Selective sales (excise) taxes: Cigarette, alcohol, and gas: States vary a lot
State income taxes: Imposed by all but seven states; may be progressive or flat, with various exemptions
Corporate taxes: In 44 states; popular with voters but may cause businesses to relocate
Lottery and gambling revenue: Administrative costs take 50 percent
User charges: Fastest growing source of state and local revenue
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6. Government Expenditures as a Percentage of GDP
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7. Revenues and Expenditures: States versus Localities
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8. Revenues and Expenditures: States versus Localities
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9. Revenues and Expenditures: States versus Localities
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10. Income Taxation in the States
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11. Explaining State Tax Systems
Tax burden is taxes as a percent of a person’s income; the larger the proportion of the income paid in taxes, the larger the tax burden.
Progressivity and Regressivity: Progressivity increases with higher levels of state income; overall state and local taxes are regressive, which is largely attributed to state and local government reliance on sales and property taxation rather than progressive income taxation
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12. Revolting against Taxes and Spending
Popular Opposition to Rising Taxes
Tax Limitations
Property Tax Limits
Personal Income Limits
State Expenditure Limits
Prohibitions on Specific Taxes
Exemptions and Special Treatments
Impact of Limits
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13. Per Capita State and Local Government Tax Revenue (Levels) and Tax Burdens

14. When Spending Cuts are Necessary: Cutback Management
Fiscal Stress in the States
Fiscal Stress at the Local Level
Difficult Decisions
Resist cutting or smooth the decline
Take one deep gouge or a series of decrements
Share the pain or target the cuts
Promote efficiency or equity
Cutback (Retrenchment) Strategies:
The no-change strategy
A hierarchy of community-needs strategy
A “privatizing” strategy
A reduction in capital spending strategy
A reduction in labor strategy
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15. When Ends Don’t Meet: State and Local Debt
Capital Financing
Constitutional Restrictions
General Obligation versus Revenue Bonds
Industrial Development Bonds
Municipal Bond Interest Deductibility
Public Bonds for Private Uses
Federal Tax Reform and Municipal Finance
Debt Patterns
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16. Spending and Borrowing

17. When a Local Government Goes Bust
Slow recovery from the great recession: Instead of officially declaring bankruptcy and having federal bankruptcy courts take over fiscal control, some cities in deep financial trouble have been rescued by state and federal governments
The goal: Financial resiliency: Governments must implement strategies to balance service levels and resources, fund reserves, capital, and liabilities, and create a culture of flexibility and responsiveness to combat future crises
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18. On the Web http://www.gpoaccess.gov/usbudget/ U.S. Federal Budget
National Taxpayers Union
The Tax Foundation
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