Question

In: Economics

take a look at the budgets at the city, state and federal levels. Name 2 key...

take a look at the budgets at the city, state and federal levels. Name 2 key differences between the two. What would you add, change, and or delete?

Solutions

Expert Solution

The two key differences between local/state and federal budgets are given below-

  • State and local governments are required to balance their budget. They have no way to borrow, unlike central government which can borrow to cover its deficit. So, central budget can have a deficit while local/state government cant.
  • The second main difference is in the way revenue is collected. Although the federal government collects the most tax revenue, state and local governments have a greater range of revenue options for funding their budgets. The federal government relies mainly on income, capital gains, excise and Social Security taxes for revenue. State and local governments collect sales taxes, fuel taxes, property taxes and fees from special licenses, such as driver's licenses. In addition, many state and local governments collect revenues from state lotteries, alcohol and tobacco taxes, and in some cases, casino gambling.

What I would change is that I would make fuel tax as a shared tax. Since fuel, as a resource, is property of both state and federal government. When imported, the deficit is also being borne by the federal government. So it makes sense that fuel tax is divided between local/state and federal government.


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