Revenue Mix
Tax revenue is a fundamental component to governmental budgets and subsequent spending. Particularly, in economic downturns, government tends to spend large sums of money in an effort to stimulate the economy and drive economic growth. To properly prepare and mitigate the cyclical nature of tax revenues, diversification is required. Through proper diversification, governments are better positioned to provide adequate service irrespective of the prevailing macroeconomic circumstances. Although aspects such as interest rates, political grid-lock, and unemployment impact all governments; through a diversified revenue stream, the impact of such occurrences will be significantly diminished. As such, a thorough tax revenue analysis is needed to prepare the city of Swobodaville for the cyclical nature of the business cycle, and the subsequent volatility in tax revenue (Williams, 2008).
When analyzing the cities overall tax composition, a larger share of tax revenue comes from personal income as oppose to corporate income. The date indicates that Swobodaville's rate is 14% while the comparator city has a rate of 11%. By having a large share of its income coming from personal income, the city's citizens have less discretionary...
This lack of discretionary income directly correlates with the lower sales tax figure Swobodaville has as compared with the comparator citizens. Personal income figures would be useful to determine what the median and mean household income of the citizens of Swobodaville is. Armed with this information, government would be in a better position to assess the overall tax base of the city to see where a majority of its income tax revenue is coming from. It would also be useful to see, individuals who are tax-exempt of those who paying lower taxes as a percentage of income. Generally, wealthy individuals, who obtain a greater proportion of their income from capital gains, tend to pay a lower tax rate. For securities held over one year, the tax rate is 15% as oppose to the 25% for gains on securities held less than a year. In addition, lower income families as a percentage of income; do not pay large sums of money in taxes due to their overall socio economic status. Therefore, the government would need to know the percentage of individuals on the upper end and lower end of the tax base to quantify, in dollar terms, the amount of lost revenue from these two segments. What may be occurring is that a greater proportion of the…
