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The budget gap occurs when the total revenue collected from all the sources of revenue in the town or state is less than the actual total expenditure on its activities and projects (Mikesell, 2018). The major source of revenue of a town is derived from the amount on sale, property available, and other taxes, charges and fees, and transfers from both governments. A budget gap could have been contributed to a majorly by failing to consider or rather overlooking the factors affecting the revenue generation in a town like, for instance, economic influence (inflation and interest rate), social and demographic change (population, age distribution, and personal earning) and politics. Strategies to close the existing budget gap are; fiscal discipline and control, action to strategic priorities, and proper execution of the budget (Mikesell, 2018).
On fiscal discipline and control, the expenditure-control function in the budget should be set to minimize spending to the level of income available. This also involves making sure that the laid down budget is applied, reports on finances are exact, and there is the protection of the legality of agency spending (Mikesell, 2018). Greater control originates from within the expenditure unit to make sure that finances are used within the legal requirements in order to avoid misuse. Restructuring the perception of control far from inputs purchased causes a big challenge for the town's responsiveness.
The town executive should also ensure that they respond to deliver finances to programs that have a high current significance or importance to its citizens (Mikesell, 2018). Towns receive many critical opportunities for offering important services; finances they have are scarce; hence they should make a choice among important options putting into consideration that there is the likelihood of their expenditure being affected by the community, state, and national environment. The executive cannot concentrate on some activities before checking their relative importance.
The town's management should ensure that there is a proper execution of the budget. The budget is to be used as a method to improve the control of functioning units and increase efficiency in agency operations. The major idea should be between the finances used and the public services performed by the unit (Mikesell, 2018). It should be a device that operates and recognizes operational efficiency.
The Budget Process of Federal, State, and the Local Government
A budget is a document that projects the effects of finances of executing specific operating conditions in the anticipated period (Mikesell, 2018). The budget borrows the plan of the policy for providing physical services and changes it into the cost of offering the plan. It should not be a projection of expenditure in the future by a government, but it shows the intended feedback to the effects that the government expects to face in the future (Mikesell, 2018). In the budget process, the market assigns private resources without requiring any intervention from outside. Movements of the price are used as an alerting device for the flows of resources. In the public sector, the resolution on the use of resources cannot be decided automatically from price and profit signals. This is because Public goods, which are the major service attention of governments, are not easy to sell, and where sales are possible, non-revenue concerns may be as fundamental as the cash collected.
Every expenditure of the government should be funded. In the private sector, if one receives the benefits of goods and services offered, one must pay for it, while in the public sector, what the government provides does not recognize how its operations will be funded. For example, when the federal government makes a decision to increase its provision of national defense, it must also decide on who will pay since it is not going to sell the service offered and no relation is existing between who receives the service and how it will be funded. Therefore, there are two sides to the budget planning process, public expenditure, and public revenue (Mikesell, 2018). The expenditure side of the budget should give the size of the public sector, building what is offered, how it is offered, and who receives it. The revenue side involves finding out whose real income will be deducted to fund the provision of budgeted services. This should finally make the total funds collected equal to the total funds used or spent. The public sector features of the flow involve the generation of revenue and delivery of service decisions since this is the part that the government gives all its attention.
The main contrast between the federal, state, and local governments' budget process is the apportion of responsibility for pieces of the full budget. For example, state budget managers are rarely directly engaged in revenue speculation, although they still operate within revenue budgets created by different people (Mikesell, 2018). On the contrary, managers in smaller local governments will be required to be involved in all parts of the budget closely.
The environment for every state is dynamic; there is increased demand for services while the income from the state is constant and, at times, decreasing. States are becoming complex, and the government demands accountability. For these reasons, an official performance measurement program is becoming a well-known management tool that provides a way of evaluating how well programs are performed, improving those programs, making sure that finances are spent in a cost-effective manner, and giving the best way for understanding accountability to the citizens. It can also be used to provide necessary data for the application of grants and the selling of bonds (Mikesell, 2018).
Performance measurement is a continuous and systematic collection, valuation, and data reporting that follows resources spent, the result of work, and whether particular results were achieved by the organization (Mikesell, 2018). Accounting for such data is important as it ensures the proper provision of government service. Performance measurement gives a comparison of resources allocated over time and checks the efficiency and effectiveness that will make regular improvements. Measurements should be verified to ensure quality and usefulness is not in doubt, they must be understood or in order not to take the risk of being used in the wrong way or being interpreted incorrectly; they should have the right timing to ensure that the conditions and measurements have not changed (Mikesell, 2018).
The following are some of the examples of the performance measure included in the revenue department of our state: the amount of revenue to be collected per quarter, the average number of days to process a permit, and the number of job opportunities created for youths per quarter. A good performance measure should be timely, reliable, understandable, relevant, comparable, and cost-effective (Mikesell, 2018). Measures that are timely have frequently available information that adds value in making decisions. All measures considered reliable have a date that is free from bias, accurate in presentation, and verifiable. Understandable measures are simple, clear, and concise to comprehend and interpret. For a measure to be counted as cost-effective, it must justify efforts and time to collect, record, display, and analyze any given data (Mikesell, 2018).
Proportional Tax and Personal Tax Compared
A proportional tax is a kind of taxation where the tax department imposes an equal rate for each individual who pays tax, ignoring their earnings (Mikesell, 2018). In other words, those who earn the least, or average, and those who earn the highest pay an equal amount of tax. Because tax is levied at a standard rate for everybody, whether an individual is earning a lesser or higher income, it is called a flat tax. .For example, a sales tax can be classified to be a proportional tax because all consumers, irrespective of the amount they are earning, pay the same standard rate. The sales tax rate is only on goods and services, and the income of the buyer is not put into consideration.
On the other hand, the personal tax or income tax is a kind of tax that the government imposes on the earning generated by businesses and individuals (Mikesell, 2018). It is an obligation of an individual to file a return of personal tax annually in order to determine their tax obligation. Income tax is charged progressively on the income of individuals. In other words, higher-income individuals pay more as compared to low-income individuals.
A proportional tax is classified under a regressive tax since the rate of tax does not go up when the income rises, which may result to rise in taxation, putting higher financial stress on low-income individuals (Mikesell, 2018). Tax will only be regressive if there is an inverse relationship where the average tax has less impact on higher-income people or businesses. Therefore, if proportional tax is used to replace personal tax, then the tax being collected will have to go down, which will affect the normal operation of the government since the amount of revenue collected, which largely depends on tax, will decrease.
Tools of Public Finance
The study of the responsibility of the government in a particular economy is known as public finance; it also includes the study of any activity carried out by the government that involves spending, taxation, and deficits (Mikesell, 2018). The objective of public finance is to check how the government is involved in the economy and understand the outcomes of their actions and changes made in the market. The results of any action taken by the government can be classified as distribution of income, economic efficiency, and macroeconomic stabilization.
In economic efficiency, a variety of resources are evaluated using a common formula of ratios and their produced results. The association of worth people puts on things is the distinction between technical efficiency and economic efficiency. Economic efficiency puts emphasis on taking out waste to give as much value as possible. While technical efficiency checks to optimize worth and, at the same time, forfeit whatever is required to build a very good initiative (Mikesell, 2018). This has to be applied in the case above to evaluate the value lost by the farmers and the whole town at large. The second category of distributing income is the computation of wealth and earnings of a nation once it is split by its total population. The use of the development of fiscal and monetary policies, regulations, and laws to monitor the balance and improvement of the economy is known as macroeconomic stabilization (Mikesell, 2018).
Mikesell, J. (2018). Fiscal administration. Cengage Learning
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