In recent times, states in modern democracies have been having hard times grappling with the loss of revenues mainly because of limitations placed on them by the federal government or because of the loss of sales taxes as a result of the proliferation of internet business. Since the last two decades, business over the internet has been skyrocketing such that it has become easier for buyers to conduct business at the convenience of their homes while saving millions of dollars of sales tax. This modern business venture has had adverse repercussions on the smooth running of state administrations whose revenues have been dwindling slowly over the years. Besides property taxes, sales taxes play an important role in the administration of state governments.
Finding an ideal economic system for a state confounded by loss of revenue resulting from dwindling internet sales and federal government limitations can be a daunting task for a novice economist struggling with economic terminologies and financial understanding. Beginning with the era of Adam Smith, the man regarded by many economics as the father of capitalism and modern economics, economists have been struggling to find ideal government or state taxation system. The manner of taxation applied by states in the
reveal differing economic foundations. United States
Human search for material affluence and political independence is what has been accelerating states’ pursuance of economic stability and encompassing tranquility since the foundations of economics first evolved and democracy became a global phenomenon worthy of embracing. While many would come with convincing and differing ideal state taxing system, in essence, there is no ideal state tax system that is currently unanimously agreed upon by global economists. The best a state can do is to have a grasp of taxes that obstruct growth and investment. Taxes on consumption, value-added taxes, and property taxes such those on immovable property have been found to be the least harmful to growth and investment while taxation on franchise and corporate taxation, taxes on business transactions, taxes on personal income and gross receipts have the hallmarks of having tremendous positive impact on growth and investment.
There are four principles that are tied to taxation. The first one is neutrality which entails avoiding penalizing individuals and businesses on the basis of their income such that the taxpayer is deprived of the right to luxury. The second one is visibility which denotes to mean government transparency so that taxpayers have the visibility of government operations in terms of how taxation is administered. Obscuring the nature of tax deductions by the government would be unconstitutional as the citizen has the right to know government tax management and operations. The third one is fairness which means people should pay taxes with fairness with the poor and rich each paying according to their means. The fourth principle is simplicity which simply means an accurate measurement of income which should be easy to administer.
The City of
generates revenue from four sources:
Personal income tax, property tax, corporate tax, and general sales tax
(Edgerton, Haughwout, & Rosen, 2004). When states find it impossible to
handle dwindling resources and economic downturn, the best its administrators
can do is to devise plans and techniques such as imposing austerity measures on
expenditure and other revenue generating procedures such as raising taxes on
properties, elevating general tax, and income tax to overcome the downward
economic slide. Because it will be futile for a state to embark on taxing loyal
citizens without making formal arrangements with the public through
consultations, navigating other avenues would produce significant results. New York
Attracting business conglomerations and charging reasonable fees would be an important step in securing the necessary revenue needed for the upkeep of city operations. Cutting state expenditure through budgetary cuts could save states struggling with withering economies. The misuse of funds by state officials and mushrooming of shadowy programs often lead to financial discrepancies that may be harmful to state financial resources. Raising other taxes other than sales tax could be beneficial for any state since revenue generated from taxes can be applied to social programs and other public goods and services that demand immediate resuscitation.
A thorough auditing of all state income from taxation will have to be thoroughly scrutinized and document in government ledgers. Having a means and ways committee and employing an appropriation committee could be an added advantage since it will be helpful for the state to overcome the horrors of misappropriation of funds. The execution of a state’s budget can be positively maintained if preventive controls are enforced, when therapeutic or diagnostic process is executed, and feedback controls such as making corrections to the budget through the performance of constant budget preparations and reviews (Mikesell, 2011). Executing a dynamic tax collection system and employing well experienced taxmen to manage the tax system will undoubtedly enhance economic growth and help deter embezzlement.
Penalizing tax evaders sends a clear signal to the rest of society that may be tempted to swindle the state of its hard-earned revenues. According to Hyman (2011), when people appear to change behavior with the intention of avoiding tax liability they are engaging in tax avoidance while tax evasion is mainly not complying with existing tax laws and failing to pay due taxes. Internet sales have been skyrocketing in recent years and with the death of Marketplace Fairness Act followed by other bipartisan support may bring in new regulatory measures to boost internet sales tax collection by states.
The Market Fairness Act which is expected to be resuscitated as soon as legislation is passed will allow states to collect internet sales tax from web-based business transactions. Fear of impeding interstate commerce has been the cause of the 1967 and 1992 U.S. Supreme Court Decisions that shielded state sales tax collection (Klein, 2013). What has become known as e-commerce in the
has transformed into a
gigantic business a force to reckon with and a venture that has the power to
penetrate any region. The consumer should be responsible for the payment
internet sales to the state. Many U.S. states are reporting billions
of dollars loss of sales tax to the internet and there is little chance these
lost monies will be recovered from consumers and internet businesses as long
the Supreme Court ruling remains defunct. Despite being dead for over a decade,
internet sales tax legislation is expected to be revived soon. U.S.
States have many ways of garnering alternative taxes. One example is the lottery tax which could be helpful for states to cover unconventional expenses in the absence of the sales tax. Lottery taxation, according to Oana (2006), is gaining ground in countries such as
where there is a plan to tax lottery companies a 10% levy for financing social
assistance programs. Even Casino owners are also not exempt from this venture
imposed by the government of Romania .
Alternative state taxation, according to Mikesell (2011), in case of economic
strangulation, include state lotteries and liquor stores that are
government-owned utilities and often fall under fiscal monopoly. Romania
Another way for government to generate revenue is through user charges that benefit specific individuals as they are voluntarily purchased from the state. Also, user fees through the sale of licenses help states generate revenue. States can generate revenue from charging the public for the multifarious services it provides or allows to operate. This includes fees charged for operating massage parlors, motor vehicle operation, and hunting licenses. Such licenses have expiration dates thereafter making business operations illegal until the license is renewed and fees paid fully. There are restrictions often placed on local governments by states depending on how much revenue they can generate on their own. State corporate licenses generated a staggering $10 billion in 2008 (Mikesell, 2011). States enjoy significant financial incentives generated from the sale of vehicle. In that same year, according to Mikesell (2011), states generated $49 billion from the sale of general sale of licenses.
User charges, according to Mikesell (2011), have four advantages that include allowing users to demand or register for public service, dramatically improving financing equity for select services, improvement of operating efficiency, and finally, user charges can make dramatic improvement cost-and-price signals for the private market. User charges allow consumers to demand efficiency and equity. However, there are limitations to user charges since non-payers are excludable for the services provided through the user charge. Beneficiaries are not allowed to pay for user charges if the service provided has welfare elements in it. The revenue collected from user charges may be questionable if the charges are substantially beyond the reach of the disadvantaged. Public resentment of exorbitant charges may be cause for alarm and lead to political involvement.
The operation of liquor stores is somehow a different method of monopoly and is evident in seventeen states. It is a distinct monopoly because the liquor sold by these states is distilled in state owned stores. Many states benefit from the proliferation of gambling enterprises. According to Mikesell (2011), as of 2007, total gross revenue from gambling had a gross total of $92.2 billion. Despite the possible moral and social concerns the industry may have on society and despite being a politically vulnerable enterprise, states generation of revenue to the tune of billions of dollars from gambling enterprises must not be taken lightly.
With state collection of casino revenue retarded by private management decision making, in general, casinos businesses are the cause of market downfalls such as the famous horse and greyhound racetracks that have been running empty in modern times. Government-operated off-track betting have been generous to state coffers in the past though there have been substantial drop in universal revenue collection in recent times due to the failure of the enterprise to spread to all corners of the nation. Currently, this formal betting enterprise is restricted to the northeast quadrant only and there is the need to have it spread all over and make it encompassing in the future (Mikesell, 2011).
States have the power to lease large tracts of land for many years and generate income from the holding of a property through leases. Leasing property to the public brings a sense of interdependence and mutual relationships that last for long periods of time as longs as the lessee and the leaser agree on certain formalities. In some instances, leases could last as long as ninety-nine years. Leasing has been a significant business venture and a form of contacting where the follow of revenue is continuous for certain duration. Leases come in various forms as they could be developed properties, warehouses, hangars, cultivable farms, and among other things, industrial machinery and permanent structures that the lessee could use for a business of choice.
States continue to loss unconfirmed billions of dollars through internet sales and taking away sales tax would place a heavy burden on the operation of state administrations. Because there is no agreed upon ideal system of taxation, the best opinion would be to devise ways to keep the current sales tax formality in place and further introduce legislation that would allow states to collect internet taxation. Placing further burden on states would jeopardize their efficient delivery of public goods and services.
Edgerton, J., Haughwout, A.F. & Rosen, R. (2004). Revenue implications of
’s tax system. Current Issues in Economics and Finance,
10(4). Retrieved from http://www.newyorkfed.org/research/current_issues/ New York City
Hyman, DN. (2011). Public finance: A contemporary application of theory to policy (10th ed.).
South-Western, Cengage Learning. Mason, OH
Klein, K.E. (2013). Internet retailer vs. retailer in internet sales tax push. Retrieved from http://www.businessweek.com/articles/2013-01-10/its-retailer-vs-dot-retailer-in-internet-sales-tax-push
Mikesell, J.L. (2011). Fiscal administration: Analysis and applications for the public sector (8th ed).
Cengage Learning. Wadsworth
Oana, D. (2006). Lottery again must pay 10 percent social assistance tax. Retrieved from http://ezp.waldenulibrary.org/login?url=http://search.proquest.com.ezp.waldenulibrary.org/docview/465493733?accountid=14872