Government revenue

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Government revenue or national revenue is money received by a government from taxes and non-tax sources to enable it, assuming full resource employment, to undertake non-inflationary public expenditure. Government revenue as well as government spending are components of the government budget and important tools of the government's fiscal policy. The collection of revenue is the most basic task of a government, as the resources released via the collection of revenue are necessary for the operation of government, provision of the common good (through the social contract in order to fulfill the public interest) and enforcement of its laws; this necessity of revenue was a major factor in the development of the modern bureaucratic state. [1]

Contents

Government revenue is distinct from government debt and money creation, which both serve as temporary measures of increasing a government's money supply without increasing its revenue.

Sources

There are a variety of sources from which government can derive revenue. The most common sources of government revenue have varied in different places and time periods. In modern times, tax revenue is typically the primary source of revenue for a government. [1] Types of taxes recognized by the OECD include taxes on income and profits (including income taxes and capital gains taxes), social security contributions, payroll taxes, property taxes (including wealth taxes, inheritance taxes, and gift taxes), and taxes on goods and services (including value-added taxes, sales taxes, excises, and duties). [2] Besides, lotteries can also bring in considerable revenue for the government. In early 2009, the Australian government used lotteries to boost spending, generating more than $60m in additional tax revenue for state governments. [3]

Non-tax revenue includes dividends from government-owned corporations, central bank revenue, fines, fees, sale of assets, and capital receipts in the form of external loans and debts from international financial institutions.[ citation needed ] Foreign aid is often a major source of revenue for developing countries, and for some developing countries it is the primary source of revenue. [1] Seignorage is one of the ways a government can increase revenue, by deflating the value of its currency in exchange for surplus revenue, by saving money this way governments can increase the prices of goods.[ citation needed ]

Under a federalist system, sub-national governments may derive some of their revenue from federal grants.[ citation needed ]

Politics

Most governments have a finance minister that oversees government revenue. Governments may also have a separate revenue service dedicated to the collection of revenue.

History

Throughout history, the way governments have been financed, the way they have generated wealth, has changed. This reflects the changing dynamics of societies, economies, and governance structures over time. In ancient civilizations such as Mesopotamia, Egypt and Rome, government revenue came primarily from taxes on trade and agriculture.

Mesopotamia

In the ancient Mesopotamia, as they lacked a currency system, households were obliged to pay taxes through goods instead. Poll taxes mandated that each man contribute a cow or sheep to the authorities. Merchants moving goods between locations were subjected to tolls and customs duties. Consequently, to minimize their exposure to these levies, merchants frequently engaged in smuggling. However, if caught smuggling, they faced punishment such as imprisonment.

Roman Empire

Taxes in the ancient Roman Empire were quite different. They were rife with unauthorized money-making schemes. The notorious publicani were private tax collectors hired by provincial governors to gather taxes exceeding the official rates. These publicani would then collaborate with other wealthy Romans, buying grain cheaply during harvest and selling it at exorbitant prices during shortages. They also lent money to struggling locals at exorbitant interest rates, often 4% or more per month. It's no wonder they were consistently grouped with "sinners" in the New Testament. Every emperor grappled with the challenge of funding the expanding administration. Various attempts to reform the tax system were made over time. The most significant changes occurred later. Diocletian, from A.D. 284-305, implemented a universal price freeze with mixed success while reintroducing the land tax on Italian landowners, mostly paid in goods rather than money. He also imposed additional tolls on traders and corporations. While theoretically providing relief to taxpayers, in practice, it fell short due to subsequent taxes imposed after the land tax was paid. Moreover, the burden disproportionately fell on the local senatorial class, risking financial ruin for any shortfall in payment. To compound matters, Constantine, Diocletian's successor, made the municipal senatorial class hereditary. This meant that even if your father had squandered the family fortune, you still inherited his status as a senator along with his tax obligations.

Crusader States

In the 12th and 13th centuries, within the crusader states, the ruling class, known collectively as the Franks, displayed a remarkable proficiency in financial management and governance. This was largely due to their ability to inherit and utilize existing administrative systems established by their Arab and Greek predecessors. Notably, the Holy Land had been under the rule of the Byzantine Empire for over three centuries, leaving behind intricate bureaucratic structures. While many of the institutions vital to the crusader states were not originally their own, the Franks adeptly adapted the legacy of their predecessors to suit their own requirements.

Regarding sources of revenue, the Franks, like those who came before them, augmented their treasury through the following methods: 1. Rents on land, i.e. payments made by tenant farmers to the landowner in exchange for the privilege of cultivating and utilizing the land. 2. Tariffs on imports and exports collected at the ports 3. Fees levied by the courts on individuals convicted of crimes and minor offenses. 4. Machinery used for extracting olive oil and pressing grapes to make wine 5. Fees for anchoring and using harbor facilities

Middle Ages

In the Middle Ages, Feudal dues constituted another form of taxation, typically paid in goods or services rather than money and were established by custom. The church enjoyed exemptions from these dues, so monarchs often resorted to demanding loans, known as forced loans, from ecclesiastical institutions. It was a common occurrence for one bishop to reverse the actions of another, typically in exchange for payment. Threats of excommunication held little sway, leading to successful coercion of loans from the church, which, owing to various factors, was notably wealthy. The only excommunication threat that carried weight was if it originated from the Pope. However, starting from 1378, when there were three rival Popes, the nobility exploited this situation shamelessly. This state of affairs persisted until the Council of Constance resolved the schism in 1418.

The United States Example

In 1915, the primary sources of income for the federal government differed significantly. Nearly half of all federal revenue originated from excise taxes, including those imposed on alcohol and tobacco. Additionally, 30.1% of federal revenue derived from customs duties, also known as tariffs, levied on imported goods from foreign countries. As per the Census data from 1915, revenues from liquor taxes totaled $224 billion, constituting 66.8% of excise tax revenue, while tobacco taxes amounted to $80 billion, making up 23.8% of excise tax revenue. Whereas, over the next century, the primary sources of federal revenue faded away, where individual income taxes and payroll taxes contributed overwhelmingly to the government's income.

In 1915, individual income taxes contributed 5.9 percent to federal revenue, and corporate income taxes contributed 5.6 percent. During that period, both taxes were comparatively modest: the highest rate for individual income tax stood at 7 percent, while the highest corporate tax rate was merely 1 percent. Over time, Congress maintained the majority of federal excise tax rates at their current levels, resulting in a slower growth of overall excise tax revenues compared to the expansion of the federal government. Several additional federal taxes became more noticeable.

The Revenue Act of 1942 brought about a significant shift in individual income taxes. Previously targeting only wealthy Americans, these taxes were broadened to apply to approximately 50 million households. As a result of this expansion, individual income taxes surged from comprising 13.6 percent of federal revenues in 1940 to constituting 45 percent of revenues by 1944, thereby emerging as the primary source of federal income. Moreover, payroll taxes increased significantly over the course of the 20th century, driven by the implementation and growth of Social Security and Medicare programs.

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See also

Related Research Articles

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.

<span class="mw-page-title-main">Taxation in the United States</span> United States tax codes

The United States has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP.

<span class="mw-page-title-main">Payroll tax</span> Tax imposed on employers or employees

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages. Because payroll taxes fall exclusively on wages and not on returns to financial or physical investments, payroll taxes may contribute to underinvestment in human capital, such as higher education.

<span class="mw-page-title-main">Taxpayer</span> Person or organization subject to pay a tax

A taxpayer is a person or organization subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms.

Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state, and local governments and are not uniform throughout the United States. Certain goods, such as gasoline, diesel fuel, alcohol, and tobacco products, are taxed by multiple governments simultaneously. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such, often remain "hidden" in the price of a product or service rather than being listed separately.

In Canada, taxation is a prerogative shared between the federal government and the various provincial and territorial legislatures.

A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumption tax can also be structured as a form of direct, personal taxation, such as the Hall–Rabushka flat tax.

<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

<span class="mw-page-title-main">Taxation in New Zealand</span> Overview of taxation in New Zealand

Taxes in New Zealand are collected at a national level by the Inland Revenue Department (IRD) on behalf of the New Zealand Government. National taxes are levied on personal and business income, and on the supply of goods and services. Capital gains tax applies in limited situations, such as the sale of some rental properties within 10 years of purchase. Some "gains" such as profits on the sale of patent rights are deemed to be income – income tax does apply to property transactions in certain circumstances, particularly speculation. There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service. There is no social security (payroll) tax.

Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.

The tax system of the Russian Federation is a complex of relationships between fiscal authorities and taxpayers in the field of all existing taxes and fees. It implies continuous communication of all its members and related objects: payers; legislative framework; oversight authorities; types of mandatory payments. The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.

Taxes in India are levied by the Central Government and the State Governments by virtue of powers conferred to them from the Constitution of India. Some minor taxes are also levied by the local authorities such as the Municipality.

Taxation represents the biggest source of revenues for the Peruvian government. For 2016, the projected amount of taxation revenues was S/.94.6 billion. There are four taxes that make up approximately 90 percent of the taxation revenues:

The Tanzania Revenue Authority (TRA) is the government agency of Tanzania, charged with the responsibility of managing the assessment, collection and accounting of all central government revenue in Tanzania.

<span class="mw-page-title-main">Excise</span> Goods tax levied at the moment of manufacture rather than sale

An excise, or excise tax, is any duty on manufactured goods that is normally levied at the moment of manufacture for internal consumption rather than at sale. It is therefore a fee that must be paid in order to consume certain products. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.

The history of taxation in the United States begins with the colonial protest against British taxation policy in the 1760s, leading to the American Revolution. The independent nation collected taxes on imports ("tariffs"), whiskey, and on glass windows. States and localities collected poll taxes on voters and property taxes on land and commercial buildings. In addition, there were the state and federal excise taxes. State and federal inheritance taxes began after 1900, while the states began collecting sales taxes in the 1930s. The United States imposed income taxes briefly during the Civil War and the 1890s. In 1913, the 16th Amendment was ratified, however, the United States Constitution Article 1, Section 9 defines a direct tax. The Sixteenth Amendment to the United States Constitution did not create a new tax.

Taxes in Switzerland are levied by the Swiss Confederation, the cantons and the municipalities.

Due to the absence of the tax code in Argentina, the tax regulation takes place in accordance with separate laws, which, in turn, are supplemented by provisions of normative acts adopted by the executive authorities. The powers of the executive authority include levying a tax on profits, property and added value throughout the national territory. In Argentina, the tax policy is implemented by the Federal Administration of Public Revenue, which is subordinate to the Ministry of Economy. The Federal Administration of Public Revenues (AFIP) is an independent service, which includes: the General Tax Administration, the General Customs Office and the General Directorate for Social Security. AFIP establishes the relevant legal norms for the calculation, payment and administration of taxes:

Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from consumption taxes whilst revenue from capital taxes is one of the lowest in the European Union.

References

Citations

  1. 1 2 3 Bräutigam, Deborah (2002). "Building Leviathan: Revenue, State Capacity and Governance". IDS Bulletin . 33 (3). Institute of Development Studies: 1–17. doi:10.1111/j.1759-5436.2002.tb00034.x.
  2. ↑ "Definition of Taxes" (PDF). OECD. April 19, 1996. Retrieved March 23, 2022.
  3. ↑ Lye, Jenny; Hirschberg, Joe (2014-09-01). "Gambling with Stimulus Payments: Feeding Gaming Machines with Federal Dollars". Journal of Gambling Studies. 30 (3): 713–727. doi:10.1007/s10899-013-9377-6. hdl: 11343/283027 . ISSN   1573-3602. PMID   23526051. S2CID   40298846.

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