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Any Government may want to involve its tax regulations and expenditures to make to lay conditions for its economy. According to lecture notes from week 5, slide 2, fiscal policy may be defined as the implication of state expenditures and tax regulations in influencing the prevailing conditions of the economy more so macroeconomic conditions. This paper presents Fiscal Policy in the American States under various subheadings such as State's source revenue, sin taxes, NASBO state expenditure, and rainy day fund as well as how state governments levy taxes, n what and on whom, and the methods with which the revenues are generated.
State's Source Revenue
State's source revenue refers to the sources from which the state government generates its revenue. In the year 1945, there were three top significant sources from which the State and local governments generated their income. These included licenses, selective sales, and other taxes. Come the year 2013, the significant sources of income were; charges and miscellaneous, individual income, and licenses. The states depended on these as their primary sources of revenue. Some of the sources have not changed irrespective of the number of years that have lapsed. States impose a variety of taxes within the selective sales taxes category. These taxes include the taxes imposed on sales of alcoholic products, tobacco products, and insurance premiums. The category named others are the taxes imposed on places and occupied areas of such businesses as insurance.
Tax policy is a government's choice on what type of tax to impose, what amount, and to whom it should be levied. The provided tax policy center article exhibits how state governments levy taxes on their citizens and business operations as well as their source. The article shows that there are countries that do not have policies regarding tax payments and collections. According to the article, states like Alabama, Alaska, Idaho, Kentucky, Nebraska, New Hampshire, Rhode Island, South Dakota, West Virginia, and Wyoming show zero policies that they put on levying taxes (McNabb, 380). This means they rarely have funds allocated for an unexpected crisis. Such states rely on debts from other countries and organizations. The GDP of such countries is hardly determined due to low individual income, and some individuals have none.
Sin taxes are associated with unwanted behaviors. The behaviors that are typically taxed by sin taxes include cigarette smoking, drinking alcohol, and gambling. These are all addictive behaviors that some citizens exhibit, which forces the State to impose taxes on. A state would impose sin taxes because the behaviors involved impose public costs. That is to say; the State has to cover the costs involved, such as in health care facilities, to take care of the affected addicts due to too much alcohol consumption and other abused substances. For example, cigarettes, when taken for too long, lead to lung and mouth cancer. The health of the victim begins to deteriorate. The patient begins to develop heart problems such as bronchial impairment.
The undesirable behaviors involved in smoking and drinking alcohol may also lead to increased rad carnage and fatal injuries, which puts the government into unplanned budgets; hence the sin tax is imposed to cater to such. Sin taxes are popular in the political bases as compared to normal taxes because it happens to be acceptable to impose tax charges on these unaccepted behaviors as a way of revenue generation. The top 5 states that had the largest percentage of all sin taxes as a proportion of their total revenues in 2015 included Florida, Tennessee, Nevada, Washington, and Arizona. Florida had 40.9%, Tennessee having 40.2%, Nevada 43.7%, Washington 43.4% and Arizona 34.85.
Out of all the undesirable behaviors that the states imposed taxes on, gambling produced more revenues for the states that considered relying on such as sources of revenue through taxation. Many states have started allowing gambling across the continents irrespective of tribe and race. There were surprises. The most surprising part of it is that some of the states had no individual income tax. These states included Alaska, South Dakota, Florida, Texas, Nevada, Washington, and Wyoming. However, they have a general sales tax to depend on. This is significant in states with a lot of tourist activities that result in tourist visits. Such arrangements help in revenue generation through the tourists' purchases and sales tax when they visit these countries.
Even though sin tax is a significant income tax in some states, there are states that least depended on that for generating revenue. These states included Idaho, Missouri, Georgia, and Ohio, among others. Their percentages ranged from 0.1 to 0.5 percent. Between the states that relied much on sin taxes and the ones that did not rely on sin, taxes had quite a big difference. The big difference was as a result of the huge amount of tax imposed on these behaviors to help support the public costs. For instance, 0.1% subtracted from 43.7% gave 43.6%, which was seen as a huge percentage difference between the states that relied on sin taxes and those that did not or least relied on it. Among the new emerging behaviors that are being legalized in states, gambling is considered to have a great impact on revenue generation.
Many states have started allowing non-tribal gambling within their jurisdictions. Many economists consider sin taxes regressive. This means that the tax rates imposed on undesirable behaviors decrease as the actual amount of income increases in every fiscal year. Economists make such judgments because of the rate at which undesirable behaviors are increasing and are continuing to be legalized in some states as the major source of revenue. Besides, they use it to support public facilities and activities such as health care for those involved in such behaviors as drinking alcohol and ending up with injuries and accidents or just health conditions resulting in cigarette smoking. To some, the risks involved in fights and quarrels among gamblers. Authors conclude that states are allowed to use any source of tax as a way of revenue generation so long as the interests of the public are considered, and the state law is not violated.
NASBO State Expenditures
National Association of State Budget Officers (NASBO), located in Washington, DC, has been responsible for serving organizations on planning and budgeting of states’ budgeting and expenditures. The expenditure section is the major part of every country's budget, having 5.7 %in the fiscal year of 2019 as compared to the previous fiscal, which was 3.4%. It looks into what states do with their incomes (Fisher, 10). Most states spend their budgets majorly on education, public health& welfare, highways and transportation, and police and corrections. Spending on education remains the most significant part of the State's expenditures and budgeting. Public education has taken the lead. Similarly, public health and welfare have also grown to higher rates among states budgeting. It also includes the provision of medical health insurance primarily directed to the poor citizens in the countries who cannot take care of their health and general well-being.
State governments spend mostly on education by constructing schools and providing learning facilities, which took 24.9%, K-12, of the state funds, in FY 2019. This cuts across all the institutions in the country from pre-primary to tertiary levels taking around 4.7% in FY 2018. Food may also be provided to those public schools to feed the children from humble backgrounds whose parents or guardians cannot cater to the full diet meal (Filardo, 32). The same applies to health facilities where the State has to mainly spend on the construction, provision, and maintenance of healthcare facilities. The increase in 2.3% is a result of the sudden Covid19 outbreak (Joffe, 10). This entails the construction of hospitals and employing the doctors and nurses with relevant skills required in the same field. Highway and transportation involve the state budgeting for the construction and maintenance of roads and highways available in the country, which took 8.9% in FY 2019. The same extends to considering the State's military services in the budgeting plans. This involves the training fees, the residential areas, the amount of money required for the out country missions, and any unexpected risks associated with the professions.
Rainy Day Fund
Rainy day fund is the amount of money allocated by the State to help curb unexpected crises that tend to appear amid the fiscal years. Kansas is the one State that had nothing in its rainy-day account in Fiscal Year 2019. Kansas had only created its fund in the past few years but had not deposited any money into it by last fiscal year. However, there are 34 states had larger rainy day funds in 2019. They made deposits into their rainy day account before the great recession took over. Besides, some countries had less than seven days' worth of operating costs in their rainy day fund in the Fiscal Year 2019 (Halpern-Meekin et al. .170). They were five states, namely, Montana, Kansas, Wisconsin, Illinois, and Georgia. Rainy day funds of government states are determined through various criteria but majorly depending on the State's income. The deposits are made out of the State's surplus income. Some countries like West Virginia base their RDF deposits on the surplus of the end years.
The overall levels of rainy day funds for state governments were 218.4 inclusive of the countries that had less than the worth operating costs in the fiscal year. Surpluses were a significant contribution to these levels. States have had varied predictions on the coronavirus pandemic's effect and have had funds allocated in times of such global health crisis (week five lecture notes, slide 34). In as much as the epidemic had no earlier signs of a large impact on the worldwide context, there are rainy-day funds that can be used in such times as this. Besides, some states borrow funds to help finance big projects.
Filardo, Mary. "State of Our Schools: America's K-12 Facilities 2016." 21st Century School Fund (2016). Retrieved from https://eric.ed.gov/?id=ED581630
Fisher, Ronald C., and Robert W. Wassmer. "An analysis of state–local government capital expenditure during the 2000s." Public Budgeting & Finance 35.1 (2015): 3-28. Retrieved from https://doi.org/10.1111/pbaf.12062
Halpern-Meekin, Sarah, et al. "The rainy day earned income tax credit: A reform to boost financial security by helping low-wage workers build emergency savings." RSF: The Russell Sage Foundation Journal of the Social Sciences 4.2 (2018): 161-176. Retrieved from https://doi.org/10.7758/RSF.2018.4.2.08
Joffe, Marc D. "Long-term trends in Medicaid spending by the states." MERCATUS RESEARCH (2015). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3191410McNabb, David E. Research methods for political science: Quantitative and qualitative methods. Routledge, 2015.
Week 5 State Budgeting and Fiscal Policy Corrections, PowerPoint.
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