Zealous Toward Social Harmony

State Fiscal Policy in the U.S.

December 14, 2010 at 9:52 pm Leave a comment

The foundation of a state’s fiscal policy is its source of economy and its taxation ideology.  Regardless of each state’s political ideology, citizens can play a role in shaping its state’s fiscal policy.  Not only do citizens vote candidates into legislative positions, which then create the taxing policy specific to the state, but in some states, citizens can effectively lobby for an institution to gain higher spending.  The former can be accomplished by direct democracy or by supporting interest groups.  Overall, a state’s fiscal policy varies based on its economy and its political culture.

A state’s spending on institutions within its state can affect its fiscal policy.  Fiscal policy is about the decisions made by the government regarding the money that is spent, the money generated through revenue, and the money that is borrowed.  It is suggested that the more conservative a state’s political ideology is, the more likely that state will tax and spend at a lower rate than liberal states.  If the former is accurate then states with Democratic governors and legislators will tend to spend more money than Republican legislatures and governors.  However, since a state’s budget is a limited amount, there are bound to be program tradeoffs and cuts within the governor’s office where he or she proposes the budget.  States that have direct democracy sometimes allows voters to restrict the taxes placed upon them by the state.  But, it is known that those states have strict limits on the amount of money available to be loaned out of the general fund.

There are number of ways in which a state can collect taxes for its general revenue fund to go toward its fiscal policy.  The federal government will collect tax revenue internally and externally from the state, which will regulate the nation’s commerce, according to the Commerce Clause.  Whereas money for the state budget is generated from separate taxes that are either progressive or regressive type taxes.  For instance, concerning property taxes that will be imposed; citizens who live on more expensive properties will need to pay more than others in taxes.  Thus the tax is a progressive tax, since the richer people pay a higher percentage of the cost for public services.  An example of a regressive tax, which causes people with lower incomes to pay a higher percentage of their income, is an income tax.  Income taxes cause the poorer class of people to pay the higher percentage of their income.  A sin tax is another type of tax that can generate further revenue for the states to close debt or shortage in the budget.  Sin taxes are classified as regressive taxes, as they tax goods that affect the lower class’ incomes the most.  Sin taxes tax items including cigarettes, soda, and gas.  Most of these types of taxes are used by the states in the U.S. in various ways to create general revenue.

An example of two states that use different taxation models are Washington and Pennsylvania.  According to the Tax Foundation, Pennsylvanian citizens are taxed at a rate just over 3 percent for income tax and corporations are taxed close to 10 percent (2^nd highest in U.S.), whereas Washington does not tax income, according to its department of revenue.  Another difference for each state’s taxation model can be found by comparing their sales tax rate; Pennsylvania’s is lower at 6 percent, while Washington’s ranges from 7 to 9.5 percent.  The differences between the states can be best explained by a Seattle Times article (“Voters reject state income tax, candy-soda tax:” Nov. 2).  The article states that with Washington’s citizens voted on whether or not to increase taxes such as income, candy and soda.  These initiatives were voted down by the citizens in its direct democracy legislature.  Thus Washington has the ability to dictate which institutions receive higher or the same amount of funding.  Thus the significant difference between Pennsylvania and Washington’s taxation models has to do with how much influence the constituents of each state have their on their state legislative body.

In summary, a state’s economy and political culture can determine its fiscal policy.  Through taxation and state spending, fiscal policies can vary as well.  Depending on how greatly the citizens of a specific state value its institutions, determines how that state will receive funding from the state.  If education is valued by constituents then there will be a higher amount of money allocated toward that institution.  But, the disadvantage of using a high proportion of one’s state budget on education is that other citizens will be concerned that healthcare or other services will not receive sufficient funding.  So it can come down to a state’s political ideology and economy source to determine how the state’s fiscal policy is set up.

Works Cited

Garber, By Andrew. The Seattle Times | Seattle Times Newspaper. 2 Nov. 2010. Web. <http://seattletimes.nwsource.com/html/localnews/2013329508_elextaxinits03m.html>.

“Sales and Use Tax Rates.” Department of Revenue. <http://dor.wa.gov/content/FindTaxesAndRates/SalesAndUseTaxRates/>.

“The Tax Foundation – Tax Research Areas Pennsylvania.” The Tax Foundation – Educating Taxpayers Since 1937. Web. <http://www.taxfoundation.org/research/topic/54.html>.

Entry filed under: Civil Rights, Poverty. Tags: fiscal policy, Poverty, state politics, taxes.