An Overview of Government Revenue Streams
Governments all around the world need to generate revenue in order to function. However, the revenue streams of different countries vary widely since every country has its own approach to taxation and revenue management. To understand how governments generate revenue, it is important to first look at the various sources of government revenue.
Sources of Revenue for Governments
Governments can generate revenue from a number of sources. These can be categorized into two main groups: taxation and non-tax revenues.
Taxation
Taxation is the most significant source of revenue for most governments. It refers to the collection of money by the government through levies on the income, profits, or consumption of citizens or businesses. The most common types of taxes collected by governments include:
1. Income tax: This tax is imposed on the income earned by individuals and corporations. In most countries, this tax is assessed on a progressive scale, meaning that those who earn higher incomes pay a higher percentage of their income as tax.
2. Corporate tax: Corporate tax is levied on the profits earned by companies. This tax rate varies widely from country to country but is typically lower than individual income tax rates.
3. Sales tax and Value Added Tax (VAT): Sales tax and VAT are taxes on consumption. Sales tax is typically charged at a fixed rate on the price of goods and services purchased, while VAT is charged on the difference between the purchase price and the cost of goods and services sold.
4. Property tax: Property tax is a tax on the value of real estate owned by individuals or businesses. This tax is typically collected by local governments and is used to pay for local services such as schools and roads.
5. Excise tax: Excise tax is a tax on specific goods, such as tobacco, alcohol, and gasoline. This tax is typically used to discourage the consumption of these goods, rather than to generate revenue.
Non-tax Revenue Sources
Governments can also generate revenue from non-tax sources. These sources include:
1. User fees: User fees are charged for specific services provided by the government, such as passport issuance or park entrance. These fees are typically charged to cover the cost of providing the service.
2. Fines and penalties: Governments can generate revenue from fines and penalties imposed on individuals or companies for breaking laws or regulations.
3. Asset sales: Governments can sell assets such as land, buildings, and other properties they own to generate revenue.
4. Borrowing: Governments can borrow money by issuing government bonds and other securities. They use the interest paid on these securities to finance government programs and services.
While taxation is the most significant source of revenue for most governments, non-tax revenue sources can also make a significant contribution to their overall financial picture.
Government Revenue Management
Once governments collect revenue, they need to manage it effectively to ensure that it is spent efficiently and in accordance with their priorities. Governments use a variety of strategies to manage their revenue streams, including the following:
1. Budgeting: Governments create budgets to allocate revenue to various programs and services. Budgets are typically created annually and are based on revenue projections and expenditure estimates.
2. Accounting: Governments use accounting systems to track revenue and expenditures. Accurate accounting is essential to ensuring that resources are managed effectively and that financial reporting is transparent.
3. Auditing: Governments conduct audits to ensure that revenue is being spent in accordance with the law and that financial reporting is accurate. Audits can be performed by internal auditors as well as external auditors.
4. Reporting: Governments report on their revenue streams and expenditures on a regular basis. These reports are typically available to the public and are used to hold governments accountable for how they are using public funds.
In recent years, governments have been increasingly focused on the efficient use of public resources and have been implementing initiatives to improve the management of their revenue streams.
Current Issues in Government Revenue
Several issues are currently impacting government revenue streams. These issues include:
1. Tax evasion: Tax evasion is the illegal non-payment or underpayment of taxes. This issue is a significant challenge for governments since it reduces the amount of revenue they are able to collect. Governments are implementing strategies such as increased enforcement and penalties to reduce tax evasion.
2. Aging populations: As populations age, governments are facing increasing pressure to provide healthcare and other services to an older population. This is placing significant strain on revenue streams, especially in countries where the population is rapidly aging.
3. Technological advancements: Technological advancements are impacting how governments collect revenue. For example, the rise of the sharing economy has made it more difficult for governments to collect taxes from individuals who earn income through services such as Airbnb and Uber.
4. Trade conflicts: Trade conflicts can impact government revenue streams by reducing trade volumes and decreasing tax revenues related to international trade.
Conclusion
In conclusion, governments rely on a range of revenue streams to finance their operations. Taxation is the most significant source of revenue, with income tax, corporate tax, sales tax, property tax, and excise tax being the most common types. Non-tax revenue sources such as user fees, fines and penalties, asset sales, and borrowing can also make a significant contribution to government revenue streams. Managing government revenue requires effective budgeting, accounting, auditing, and reporting. Several current issues are impacting government revenue streams, including tax evasion, aging populations, technological advancements, and trade conflicts. Governments will need to implement effective strategies to manage these challenges and ensure that they can continue to provide high-quality public services to citizens.
Each state and local government is allowed to make their own tax laws. In fact, each jurisdiction has the power to  impose taxes at will. Those taxes must apply equally and result in no unfair treatment, as is found in the Commerce Clause
Payroll taxes Background:
Each state and local government has the ability to make laws regarding taxes they impose on citizens. In addition to Federal taxes, citizens are also subject to local and state taxes. In some cases, citizens pay taxes to all three jurisdictions on one item. For example, gas can incur the excise tax sales taxes.
Due Process Federal Courts :
Taxes can be classified depending on varying factors. Progressive taxes are those that tax everyone at the same rate, regardless of other factors. In other words, individuals are taxed equally as a percentage of salary. Whereas, regressive taxes tend to tax the lower and middle class at a higher percentage of their salary.
Flat rate taxes, like sales taxes, are taxed as a flat rate percentage of the sales price, regardless of an individuals economic situation. Income tax in a little bit of both. Each income level is taxed at varying percentages based on where an individual falls on a the tax bracket. However, those that make larger salaries are taxed at a higher percentage. The reason income tax can be classified in either class, is because of the many factors that influence the amount of income tax an individual actually pays.
Dependents and other allowable deductions, greatly influence an individuals actual tax burden. It can be said that the wealthy are likely to have more allowable deductions, simply because they spend more money. Also, the wealthy are more likely to pay an accountant to do their taxes, thereby avoiding missing any deductions.
Progressive Tax:Â
Progressive taxes are those that are based on each individuals income. In other words, individuals are taxed at a percentage of their salary. Although each taxpayer would be subject to taxes based on the same percentage of their salary, the actual amount of taxes imposed would vary significantly. However, the actual tax burden would be fairly distributed according to each taxpayers salary. Many members of the tax reform movement have pushed for a change in the way that each tax is imposed. Most taxes could be converted to progressive taxes but implementation would be extremely difficult. For example, the Value Added Tax, or the VAT
Regressive Tax:
A regressive tax is imposed as a flat rate tax. For example, sales taxes are regressive taxes. That tax is imposed as a percentage of the price of a particular item and the tax applies no matter who makes the purchase. For example, anyone that makes a one hundred dollar taxable purchase in New Jersey, would be subject to the same seven dollar tax, regardless of any other factors. The regressive tax is often involved in accusations of unequal taxation. The taxes are considered unfair because each person is taxed at a different percentage of their actual salary.
Therefore, each taxpayer becomes responsible for taxes at a different percentage of their income, making the wealthy responsible for a smaller amount of the overall tax burden based on their salary. Excise taxes are regressive because tax payers pay a flat rate of tax based on the quantity of an item purchased. One gallon of gasoline is taxed at the same percentage regardless of the salary of the individual that makes the purchase. Those with a lower income payer a larger percentage of their salary towards that tax.
Income Elastic:
Income elastic factors are those dependent on an individuals income. For example, the type of housing someone lives in, is most certainly income elastic. In other words, people choose their home based on their income. While a wealthy individual may choose a basic home, it is not likely that an individual in the lower or middle class, would chose to purchase a high end home, simply because of income limitations. Many high end items are income elastic and are often dependent on the overall state of the economy. For example, the purchase of luxury vehicles has dropped drastically as a result of the recent economic down turn.
Medicare taxes are income elastic because they are paid by a taxpayer as a flat percentage of their overall salary. There is no maximum threshold for Medicare taxes, so an increase in salary means that an individual would have an increase in their Medicare tax burden. Whereas, Social Security taxes are income inelastic, because there is a maximum threshold. People that make above that threshold, do not pay a higher Social Security tax.
Inelastic:
Inelastic factors are those that are not generally dependent on outside influences. For example, the necessity of clean drinking water is inelastic. Clean water is always necessary. Individual circumstances may effect the availability of clean drinking water, but not the need for it. There are economic situations that are not influenced by outside factors. Property taxes are inelastic in the sense that property owners must always pay them, regardless of their current financial situation.
Social Security taxes are also mostly income inelastic because taxpayers in most salary ranges, pay the same tax, based on a maximum threshold. For some individuals, those in the lowest and highest salary ranges, the tax may be considered income elastic. In  most cases however, the Social Security tax is income inelastic. Almost all taxpayers shoulder an equal burden for Social Security taxes and no tax payer pays more than the maximum threshold.
Cyclical:
Cyclical factors are those that are predictable, because they happen according to a specific cycle. For example, payroll taxes
Countercyclical:
Countercyclical factors are those that work in opposition of a current circumstance. Taxes of that nature, work in opposition of the current state of the economy or in opposition of an individual taxpayers circumstances. For example, taxes that are lowered during prosperous economic times, would be considered countercyclical. Conversely, taxes that are raised during difficult economic times, are also countercyclical.
Many jurisdictions recently voted on school budgets. In most tax jurisdictions, higher school budgets mean an increase in property taxes. The economic climate in this country is difficult for many citizens. So, an increase in property taxes would be countercyclical as it relates to the current economy. IN fact,many taxes are currently being raised, which is countercyclical to the current economy, and to most taxpayers salaries.
Non-cyclical:
Non-cyclical factors are those that have no cycle. There are some taxes that are imposed in a non-cyclical nature. For example, sales taxes are non-cyclical because they are imposed when an individual makes a purchase. Although individual consumers may make purchases on a cyclical manner, the tax itself is non-cyclical.
Sales taxes:
In order for substantial nexus to be met, there must be a connection between the taxpayer and the state that wishes to impose the tax. If merchandise simply passes through a post office within a state, that does not constitute a relationship. A relationship could however, be as simple as deliveries made in a state. Mail order catalogues may deliver to all fifty states. In some cases, they add a tax for residents of specific states. It is likely that those states’ also impose a tax on that business, based on their deliveries to that state. Any business which is taxed by a state, must have legitimately had, or conducted business in that state, in order to meet the substantial nexus requirement.
This factor of taxation involves an equal taxation distribution between the state’s in which the company conducts business. If for example, a company conducts business in three states, they can not be fully taxed by all three states. Those states must determine taxation based on the companies income from that specific state. The Commerce Clause allows for each state to tax companies that conduct business in a state, but the company cannot be subjected to unfair taxation. Each state determines taxation based on one or more factors including the percentage of a company’s business conducted within that state.
Non discrimination of taxation explains that taxes must be favored on either the interstate or intrastate level. This determination, based on the Commerce Clause, means that no state may impose taxes that make business in one or more states, favored over conducting business in another state. This is meant to prevent companies from being discouraged from conducting business in any state, based on taxation.
In order for a state to impose taxes on a company, that company must be able to enjoy the benefits that are funded through that state’s tax revenue. Any company that conducts business in a state, likely utilizes services that are directly funded through tax revenue. For example, roadways are often fixed through the utilization of tax dollars. Therefore, a company that uses the roadways to make deliveries in a state, directly enjoys the benefits provided through that state’s tax revenue. This is the easiest factor to prove, in order to allow a state to impose taxes on a  company.
