Taxation Flashcards
Common revenue sources for the (state) gov’t (in order of percentage)
- Taxes
- Federal grants
- Fees & licenses (e.g. auto registration, liquor license)
- Interest on investments
- Direct sales (e.g. state-owned liquor stores_
- Borrowing
- Gambling &/or lottery
Types of state tax
Income
sales
property
severance
Tax rate, Effective tax rate. Exemption, Deduction, Credit
- Tax rate: base rate at which something is taxed
- Effective tax rate: after deductions, exemptions, etc.
- Exemption: Not taxed
- Deduction: Subtracted from total amount taxed
- Credit: Applied against amount you have to pay
Tax base, Tax burden
- Tax base: what is being taxed
Tax burden (or incidence): - % of income (or total revenue if tax on business) paid in taxes
- Statement about distribution of the costs of taxation throughout society
Type of Tax Burden
- PROGRESSIVE: higher income groups pay a larger share
* e.g. federal (& some state) income
taxes - REGRESSIVE: lower income groups pay a larger share
* e.g. sales & excise taxes - PROPORTIONAL: all income groups pay same percentage
* e.g. tithe or other “flat tax”
Income Tax: tax base, tax rate, tax burden
TAX BASE: Personal or corporate income subject to taxation
* May be much lower than total income
* Lowered by deductions, exemptions, etc.
TAX RATE: Usually progressive
* But some states have proportional income tax
TAX BURDEN:
* Widely accepted as progressive based on adjusted gross income (AGI)
* Much less progressive when calculated w/ “total income”
Sales Tax: tax base, tax rate, tax burden
TAX BASE: Sales subject to taxation
* e.g. food (not prepared food), medication exempt in TX
TAX RATE: fixed
* Local example:
* State’s share = 6.25%
* Brazos County sales tax = 0.5%
* College Station sales tax = 1.5%
TAX BURDEN: Regressive
How is sales tax regressive?
As income increases, the tax stays the same, so:
* Lower-income earners pay out larger % of income in taxes
* Higher-income earners pay out smaller % of income in taxes
Excise Tax: tax base, tax rate, tax burden
TAX BASE: Sales of particular items
* Often levied on inelastic goods
* Sometimes also a “sin tax”
* e.g. cigarettes, alcohol, sugar, carbon emissions
* Revenues often earmarked for specific purposes
TAX RATE: fixed
TAX BURDEN: Regressive
* More so than general sales tax?
Property Tax: tax base, tax rate, tax burden
TAX BASE: Property subject to taxation
* E.g. minus homestead exemption, etc.
TAX RATE: fixed by the mill rate
* Mill rate = dollars per $1000 of assessed value
* e.g. $4.29411 per $1000 of value
* TX renders as tax per $100 of assessed value, e.g:
* Brazos County: $0.429411
* City of College Station: $0.524613
* CSISD: $1.178100
TAX BURDEN: Regressive
How is property tax regressive?
might be considered progressive for limited income people, but…
High income-earners often don’t own expensive enough property for their tax burden to increase proportionally
State Tax Structures
refers to overall structure of taxation in a state as a whole
can be progressive, regressive, or proportional depending on the type and rate of tax used
Most state tax structures are regressive, which means the gap between rich and poor increases
Taxation in Texas
Low state taxes:
no income (or corporate income) tax, but has gross receipts tax
Higher than avg sales tax
High local taxes
- Very high property taxes
- State “pushes” costs to local gov’t
Progressive and Regressive Features of Texas tax structure
Progressive Features
1. Sales tax base excludes groceries & medicine
2. “Tax free weekend”
Regressive Features
1. No personal income tax
* Heavy reliance on sales & property taxes
2. No corporate income tax
* Use of (regressive) gross receipts tax
3. Few tax credits for low-income taxpayers to offset regressive taxes
Texas tax ranking
Regularly ranked as one of most tax regressive states
Low-income residents bear heavier burden in state taxation
