Revenue Administration and Tax Mix

? Course Text: Fiscal Administration: Analysis and Applications for the Public Sector
?
o Chapter 7, “Taxation: Criteria for Evaluating Revenue Options” (pp. 335-376)
o Chapter 8, “Major Tax Structures: Income Taxes” (pp. 396-429)
o Chapter 9, “Major Tax Structures: Taxes on Goods and Services” (pp. 439-446)
o Chapter 10, “Major Tax Structures: Property Taxes” (pp. 485-495)
Media
? Course Media: Finance and Budgeting for the Public Sector
o “Budget Management Functions: Revenue” with Jacqueline Byers (approximately 8 minutes)
Application: Revenue Administration and Tax Mix
The major limiting factor in determining the size of a budget in the public sector is the capacity to tax or
generate revenue. To compute fiscal capacity, a representative tax system should assess the level of personal
income, the value of retail sales, and the value of property. However, there are other areas that governments
should focus on when striving to ensure and maintain revenue generation. Diversifying a revenue portfolio is
paramount, especially when the economy takes a downturn. In this Application, you will evaluate whether a
hypothetical city has an adequately diverse tax mix, and recommend possible actions to improve its tax base.
To prepare for this assignment:
? Review the selected readings from Chapters 7, 8, 9, and 10 in Fiscal Administration: Analysis and
Applications for the Public Sector, focusing on tax mix and revenue administration.
? Review this week’s course media, “Budget Management Functions: Revenue,” and focus on the need for achieving
a diverse revenue portfolio.
? Reflect on the need of governments to achieve a balanced tax mix to ensure revenue generation regardless of
external limiting factors.
? Think about ways in which a public organization could diversify its tax mix.
? Consider the following scenario for use in this Application:
The City of Swobodaville, a city in the lower Midwestern states, has not analyzed its tax base for a number of
years. A new mayor, elected on a fiscally conservative platform, orders the city manager to conduct such an
analysis. The mayor argues that the real tax base has declined in the previous five years. Part of the
analysis shows a recent, although small, trend of businesses leaving the city for the suburbs. At the same
time, the population is aging. The number of retirees has increased noticeably, but not significantly, in
recent years. The analysis reveals that the real tax base has declined slightly in three of the previous five
years and increased slightly in the other two years. It also shows that the tax collection rate has fallen off
from 95 percent to 93 percent. The city analyzes its position with comparator cities. The following is
discovered:
Type of Tax
Personal Income: Comparator: 11%; Swobodaville: 14%
Corporate Income: Comparator: 7%; Swobodaville: 6%
Sales Tax: Comparator: 39%; Swobodaville: 36%
Property Tax: Comparator: 38%; Swobodaville: 36%
Other Taxes/Fees: Comparator: 5%; Swobodaville: 8%
The assignment: (1?2 pages)
? Analyze the tax mix of Swobodaville. In your analysis
o Explain whether the different tax types represent a good mix of revenue for the city.
o Describe any actions the city should take regarding its tax base.
o Explain what else you would need to know to conduct a more complete analysis of the tax mix situation in
Swobodaville
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