Deck 13: Taxing and Spending

Question 1

High-tax capacity is associated with

A)the degree of centralization or decentralization of state activities.
B)the tax-collecting vigor of the state.
C)high levels of urbanization, per capita income, economic development, and natural resources.
D)the political culture, historic factors, and other state-specific variables.

Answer 1

C

Question 2

Today, property taxes

A)are the largest source of state government revenues.
B)represent the largest component of New Hampshire's tax revenues and the smallest part of those revenues in Alaska.
C)are easier to collect because the property never moves and its value seldom changes.
D)are the largest source of local government revenues.

Answer 2

D

Question 3

The tax revolt that originated in the late 1970s and early 1980s

A)has continued at a slower pace and, in many states, has taken the form of requiring super-majorities for tax increases.
B)is being repealed as state and local governments put taxes back into place to restore the damage done by past deficits and cutbacks in services.
C)is not apparent because few states did more than give lip service to the crises.
D)has all but disappeared.

Answer 3

A

Question 4

Most experts agree that among the most important criteria to evaluate taxes are the fundamental principles of

A)equity.
B)political accountability.
C)yield and elasticity.
D)All of these choices.

Question 5

In terms of total state and local government spending, the single largest category of spending currently is

A)higher education.
B)public assistance (welfare).
C)Medicaid.
D)transportation.

Question 6

Personal and corporate income taxes are

A)generally the most attractive revenue alternative based on yield, elasticity, and ease of administration.
B)strongly opposed by liberals as confiscatory and inhibiting economic growth necessary to provide social services.
C)adopted by the thirty-five largest states.
D)reserved by all states for their use and thus not available to local governments.

Question 7

Poor states, with low tax capacity, are forced to

A)tax at a lower rate than wealthy states because there is less demand for basic services.
B)tax at the same rate as wealthy states because tax capacity is not related to tax effort.
C)exert less tax effort than wealthy states.
D)tax at high rates just to pull in enough money to pay for basic governmental functions.

Question 8

User fees clearly pursue which of the following?

A)The equity principle
B)The accountability principle
C)The benefit principle
D)The mandate principle

Question 9

Which of the following taxes are considered the most equitable?

A)Property tax
B)Sales tax
C)Personal and corporate income taxes
D)User fees

Question 10

States currently collect more of their revenues from which of the following sources?

A)Lotteries
B)User fees
C)General sales and gross receipts taxes
D)Income taxes

Question 11

States can improve the yield of the sales tax by broadening the base to include services and thus make the tax more equitable as upper-income individuals are heavier users of services. Which of the following examples is not an example of taxing a service?

A)A tax when you repair of your automobile
B)A tax when getting your hair cut
C)A tax on the cost of having a tattoo applied to your arm
D)A tax on the cost of buying cigarettes from a convenience store

Question 12

Evaluating tax options on the basis of political accountability means

A)using a procedure known as bracket creep to ensure that taxpayers are aware of their liabilities.
B)considering the ease with which the tax can be administered by a government using standard accounting methods.
C)considering the degree to which the effects of a particular tax are made public by political decision makers.
D)adjusting taxes as the economy heats up or cools down.

Question 13

Taxing Internet sales

A)remains insignificant to most states because it is too complicated for the stores to keep track of all 50 state laws on sales taxes. Sales on the Internet have been declining significantly in recent years.
B)would generate close to $5 billion a year of additional sales tax revenues through online catalogue sales and perhaps $23 billion from Internet sales overall.
C)has been a significant source of revenue since 1998 for forty-six states after the U.S. Supreme Court allowed North Dakota to become the first state to impose a tax on Internet sales.
D)may never be a source of revenue for the states because the U.S. Congress passed a law that forbids state and local government from ever imposing a tax on sales transactions that occur on the Internet.

Question 14

The use of circuit breaker legislation on property taxes is intended to

A)provide tax breaks to rental property owners.
B)make those taxes more equitable because the tax rate is closely related to the ability to pay.
C)ensure parity in property tax revenues between wealthy and poor neighborhoods.
D)make tax collection more efficient.

Question 15

Severance taxes, as a source of state revenues, are popular

A)in states that have a lot of natural resources. They help keep income, property, and sales taxes relatively low and eventually those taxes are paid mostly by out-of-state users.
B)with resource-rich states, but the rates are set by the national government.
C)in states like Virginia and Washington, but they are unused in Alaska and Wyoming because the price of natural resources is constantly changing due to market conditions.
D)because they exempt natives (in-staters)from the tax.

Question 16

State lotteries are

A)criticized as they are costly to administer and have low yields.
B)seen as boons to state budgets as they have high yields.
C)viewed as equitable sources of tax revenue.
D)characterized as non-cyclical and stable revenue streams.

Question 17

The state and local governments' fiscal landscape

A)has remained unchanged since early in the twentieth century.
B)has changed profoundly in the last three decades.
C)continues to be dominated by federal government intergovernmental funding.
D)shows lots of surplus revenue because citizen demands for services lag behind available resources.

Question 18

State and local governments increasingly rely on fees and charges for services rendered. Which of the following is not an example of such a fee or charge?

A)Sales tax on beer sales
B)Paying for a permit to enter a state park
C)Paying a separate bill for city water and sewer service
D)Paying to register your vehicle

Question 19

Intergovernmental transfers include all except

A)payments to Medicaid recipients.
B)grants-in aid.
C)state income taxes.
D)federal funds to improve state highways.

Question 20

The 2009 federal stimulus package is the most recent example of distributing federal countercyclical aid dollars to the states and localities. This package alleviated about __________ of state budget deficits.

A)25 percent
B)12.5 percent
C)40 percent
D)50 percent

Question 21

Many states have experienced limited discretion in taxing and spending due to

A)TELs, earmarking, and unfunded liabilities.
B)popular consent to increase taxes.
C)the lack of a sophisticated model for predicting revenue.
D)the reliance on a single, non-diversified, revenue source.

Question 22

In 1978, California voters passed Proposition 13, which significantly cut property taxes and is credited with kicking off a taxpayer revolt across the nation.

Question 23

Which of the following bonds is issued to fund the construction of a facility to be used by a private firm?

A)General-obligation bond
B)Revenue bond
C)Industrial development bond
D)Excise bond

Question 24

Casino gambling and slot parlors are now offered in about forty states.

Question 25

In 1911, Wisconsin became the first state to implement a personal income tax, which was several years before the federal government enacted its own personal income tax.

Question 26

The largest expenditure gains in recent years have been in Medicaid.

Question 27

Local governments can levy taxes and fees, incur debt, and spend money without state government authorization.

Question 28

The concept of elasticity with respect to taxation holds that tax yields should be automatically responsive to changes in economic conditions. For example, as per capita income grows, revenues should also increase without increases in the tax rate.

Question 29

Tax effort depends largely on the scope and level of services desired by the citizens of that state or municipality.

Question 30

The most important state and local government investment is usually the money in

A)bond banks.
B)employee pension funds.
C)rainy day funds.
D)derivatives.

Question 31

The national government contributes about one-quarter of all state and local revenues; however, more than 60 percent of these federal monies are passed to individual recipients such as those receiving Medicaid.

Question 32

Own-source revenues refer to monies derived by a government from its own taxable resources.

Question 33

A regressive tax places a greater burden on the affluent because the tax rate falls as taxable income rises.

Question 34

State lotteries are a fairly recent phenomenon and came about as a response to the fiscal stress of the 1970s and 1980s.

Question 35

The general sales tax is a good example of a progressive tax.

Question 36

Current procedures for estimating state and local revenues as a basis for budget planning

A)are unreliable, given the lack of data.
B)are free of error now that highly reliable computers are available.
C)rely on simply extrapolating from past trends.
D)rely more and more on sophisticated econometric models made possible by computer technology.

Question 37

In 2013, Congress passed the Marketplace Fairness Act, which placed a moratorium on taxing Internet transactions. The moratorium has now been lifted, and states are free to tax all items sold on the Internet under each state's sales tax rules.

Question 38

Financial pressure on a government from factors such as revenue shortfalls and taxing and spending limitations is generally referred to as

A)monetary stress.
B)fiscal stress.
C)TELs.
D)pass-through spending.

Question 39

The benefit principle holds that taxes should be levied on those who benefit directly from the government services. An example might include having to pay a user fee to use a municipal golf course.

Question 40

Detroit, Michigan declared bankruptcy in 2013 for several reasons including auto manufacturing moving overseas and pension and health care liabilities mounting to unsustainable levels.

Question 41

Many criteria can be used to evaluate taxes. Explain three of the most commonly agreed upon criteria. Then use the sales tax, property tax, personal income tax, and lottery to illustrate how these criteria might apply in each instance.

Question 42

States have long replaced their antiquated Industrial Age tax models in favor of postindustrial revenue sources.

Question 43

Every state except Vermont is constitutionally or statutorily mandated to balance its budget each fiscal year.

Question 44

The fiscal problems facing states and local governments today are not short term-they are systemic. Revenue systems are archaic. Some programs are underfunded, while others may have outlived their value but still hang on. Voters want services but often refuse to approve the resources necessary to pay for them. You are running for governor and writing your campaign platform on the principle of transparency and honesty. What do you say?

Question 45

Health care, Medicaid, corrections, and public education can easily be paid for by the Federal Government.

Question 46

Fiscal stress refers to financial pressures placed on a government from factors such as revenue shortfalls, taxing, and spending limitations.

Question 47

Describe the current fiscal challenges to state and local financial systems. How have states and localities dealt with these challenges? Provide specific examples and comment on the future role of interdependency and diversity in financial systems as mechanisms to deal with these fiscal challenges.

Question 48

Why have lotteries and legalized gambling gained favor in terms of sources of revenue? Describe the advantages and disadvantages of such a revenue source. Discuss and defend your position on whether states and localities should rely on such sources.

Question 49

What are the major services for which state and local governments spend the most money? What trends have taken place over the past ten years in terms of areas where spending is growing faster and slower than the average? What factors are influencing these trends? How does this impact taxpayers' willingness to raise or sustain revenues to pay for those programs and services?

Question 50

​Rapid and severe deterioration in revenues slammed state and local governments during the Great Recession.

Question 51

State and local governments have experienced a recent favorable surge in economic fortunes.

Question 52

Recessions notwithstanding, many states and localities face chronic fiscal shortfalls because of deep structural problems in their revenue systems.

Question 53

The principal and interest payments on revenue bonds are secured by the fees or charges imposed on the users of a facility run by a state or local government entity managing the facility.

Question 54

The Federal Government is always a reliable fiscal partner with the states.

Question 55

The need to increase state and local capacity and responsiveness by reinventing and reinvigorating government has perhaps never been greater.