Professor Mitch 612 Assignment

Introduction

Topics to be covered include:

· Equity and Taxation

· The Politics of Taxation

· The Representative Tax System (RTS) and Total Taxable Resources (TTR)

· Fiscal Need and Fiscal Comfort

· Budgeting and the Micro Level

· Accounting

· The Future of Annual Revenues and Expenditures

· Auditing

· Budgeting at the Macro Level

· The Classical Approach

· The Keynesian Approach

· Tools for Managing the Federal Budget

· Managing Federal Bonds

When it comes to sources of revenue, the federal government gets most of its revenue from

income tax, while state governments get their revenue primarily from sales taxes, and local governments get most of their revenue from property taxes. Where methods in the revenue process are concerned, budgeting can be divided into two overall categories: micro and macro budgeting.

Equity and Taxation

There are two chief principles of taxation, the benefits-received principle, and the  ability-to-pay principle . Under the benefits-received principle of taxation, those who benefit from public services should pay a proportionate amount of taxes to support these services. The ability-to-pay principle of taxation means that those who can afford to bear a higher tax burden should pay more.

CONCEPTS IN THE ABILITY-TO-PAY PRINCIPLE

VERTICAL EQUITY Vertical equity  treats different taxpayers differently, based on their ability to pay taxes. Tax schedules based on vertical equity can be  proportional, progressive, or regressive , and the most accurate measure of vertical equity is effective tax rates (Ryu 2014, p. 179).

HORIZONTAL EQUITYUnder  horizontal equity , taxpayers with equal capacities should pay equal taxes. Married couples previously had larger tax liabilities due to many provisions in the federal income tax law, though these have been eased considerably. As consumers do more and more shopping online and through other remote methods, remote sales placed higher sales tax burdens on traditional in-store transactions, an example of horizontal inequity. To address horizontal inequity between capital-intensive companies and labor-intensive companies, state corporate income taxes were introduced.

In the article “Financial Transaction Taxes in Theory and Practice,” (2016) the authors explore issues related to a financial transaction tax (FTT) in the United States. This article traces the history and current practice of the tax in the United States and other countries, reviews evidence of its impact on financial markets, and explores the key design issues any such tax must address. In presenting new revenue and distributional effects of a hypothetical relatively broad-based FTT in the United States, the authors find that, at a base rate of 0.34 percent, it could raise a maximum of about 0.4 percent of GDP ($75 billion in 2017) in a highly progressive manner (Burman et al., 2016, pp. 171-216).

 

When a tax system is based on loopholes, deductions, and incentives, horizontal equity is difficult to achieve. Tax breaks keep individuals who make similar incomes from paying the same rates. As an example, consider two individuals who each earn $50,000 per year. One owns his home and has a mortgage, while the other rents. The homeowner would be able to deduct the interest he pays on his mortgage, making his tax liability lower than that of the renter.

PROPERTY TAXES

Local property taxes are commonly regarded as regressive, but the two dominant (and competing) views of property tax would disagree. Under the capital-tax view, the national element of the tax is a tax on real estate capital, which makes it somewhat inefficient but progressive, given the distribution of ownership of real property. Under the benefit view, the local component of the property tax is not really a tax but a fee for service. In their paper “Are Property Taxes Regressive, Progressive, or What?” Fischel and Oates describe evidence that the capital-tax view applies in relatively undeveloped areas, while the benefit view is more relevant in developed urban areas (Fischel & Oates, 2016, pp. 415-433).

 

 

PROPORTIONAL TAXA tax is  proportional when its average rate remains the same, regardless of the size of income. For instance, two households making $10,000 and $30,000 a year would each pay 10 percent of their incomes in taxes.

 PROGRESSIVE TAXA tax is  progressive  if its average rate increases as income increases. With a progressive income tax, a household with an annual taxable income of less than $10,000 would pay 5 percent in income taxes and a household realizing an income between $10,000 to $20,000 would pay 10 percent. One with an income between $20,000 and $30,000 would pay 15 percent, and so forth. The federal income tax is an example of a progressive tax. The 2013 income tax code created the most progressive federal income tax schedule in decades. State income taxes are also mildly progressive.

REGRESSIVE TAXA  regressive tax is one whose average rate declines as income increases, taking a smaller and smaller proportion of a person’s income as their income increases. A regressive tax may or may not take a larger absolute amount of income as income expands. For instance, a household might pay 15 percent of its income is less than $10,000; 10 percent on an income between $10,000 to $20,000; 5 percent on an income between $20,000 to $30,000; and so on. State sales taxes are mostly regressive. Many states exempt necessities such as groceries from sales tax to make these taxes less regressive. Local optional sales and income taxes are mostly regressive as well.

The Politics of Taxation

HOW TO FINANCE PUBLIC SERVICES

The  politics of taxation  often bypass the principles of sound taxation. Politicians often attempt to cut taxes to satisfy their constituencies through electoral and legislative politics. This action often reduces tax bases and raises issues of equity. Democratic and Republican presidents alike have based their electoral campaigns on tax cuts, although the people whom they promise will benefit from them varies with the administration. Candidates for governor and state representative have made pledges to cut taxes as well. In most races for office, tax policies are critical issues.

Politicians have tried hard to avoid debates on how to finance public services even during times of fiscal crises. Legislative politics involve a more limited number of individuals who try to affect state legislators on a specific policy or tax outcomes. Lobbyists from business groups, small businesses, labor unions, local government associations, civic associations, and environmental groups stand in line for the chance to influence state legislatures.

When politicians cannot avoid taxation, they try to obscure tax burdens. Since low-income earners are the ones most affected by sales taxes and are also the least likely to vote, politicians tend to increase sales tax rates before more visible income taxes. Excise taxes and corporate income taxes are often passed on to consumers, but not visibly so, and consumers are often unaware of the full impact of their sale, mainly due to strong resistance from political power groups in these fields. Sound tax principles are frequently confused with mundane political matters, such as pressures from interest groups that would benefit from specific tax breaks. Recent debates over how to control federal deficits are another example that illustrates how political pressures can affect tax policies.

FINANCIAL MANAGEMENT RESEARCH

Quantitative public financial management research focused on local governments is limited by the absence of a common database for empirical analysis. While the U.S. Census Bureau distributes government finance data that some scholars have utilized, the arduous process of collecting, interpreting, and organizing the data has led its adoption to be prohibitive and inconsistent. The authors of “The Government Finance Database: A Common Resource for Quantitative Research in Public Financial Analysis” offer a single, coherent resource that contains all of the government financial data from 1967-2012, uses easy to understand natural-language variable names, and will be extended when new data is available (Pierson, Hand, & Thompson, 2015).

 

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EXAMPLE: CALIFORNIA PUBLIC SCHOOLS

School finance is highly centralized in California, as the state determines almost all of the revenue school districts receive. The only significant source of local revenue is a tax on parcels of land. In their report “The Parcel Tax as a Source of Local Revenue for California Public Schools,” Lang and Sonstelie show that the likelihood a district levies this tax is positively related to the income of district residents and negatively related to the tax-price of spending per pupil in the district, and that it is also negatively related to the revenue a district receives under the state's school finance system (Lang & Sonstelie, 2015, pp. 545-571).

 

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The Representative Tax System (RTS) and Total Taxable Resources (TTR)

REPRESENTATIVE TAX SYSTEM (RTS)

The  representative tax system  (RTS) measures fiscal capacity across various governmental jurisdictions. As a tax system, the RTS is “representative” or “typical” of the taxes levied by each level of government. Its purpose is to measure the ability of different levels of government to raise revenue. The RTS estimates the tax yield that would result from applying a set of tax rates to a tax base, which enables policymakers to estimate and compare the revenue that each level of government collects. In order to make comparisons among subnational governments more meaningful, a common denominator of the population is used where the estimated revenues of the RTS is expressed on a per capita basis (Ryu, 2014, p. 188).

RELATIVE FISCAL AND ECONOMIC STRENGTH AND INTERGOVERNMENTAL TRANSFERS

The RTS has two broad categories of potential use. The first provides information on the relative fiscal and economic strengths of each level, and the second provides information on designing intergovernmental transfers systems. It serves as a measurement tool for the potential ability of each level of government to collect its own revenues from its own sources. The RTS does not judge a system’s effectiveness or efficiency, and it is not influenced by any actual tax policy. Its features are important especially if it uses the estimates it measures as a basis for distributing funds across levels of government. Applying this system yields consistent estimates of potential revenue that each level of government could raise under a standardized tax policy. These estimates can be compared across levels of government to determine the ability of each level to raise revenue (Ryu, 2014, p. 191).

TOTAL TAXABLE RESOURCES (TTR)

Scholars have criticized many of the RTS’s methodological limits. First of all, it involves the interpolation of data, which results in high dependence between yearly data sets. It does not cover all tax bases, while double-counting others. A more reasonable alternative measure is called  total taxable resources  (TTR). TTR measures the sum of the income flows within a certain state and those that its residents received and the state can potentially tax.

Fiscal Need and Fiscal Comfort

The RTS does not account for different levels of demand for public programs across jurisdictions. The Representative Expenditures System (RES) measures jurisdictions’  representative workload  and then develops standardized expenditure measures known as the fiscal need index (Ryu, 2014, p.187). The estimated spending is then adjusted for relative costs of inputs for that function. For each state, the per capita spending levels on each function (such as elementary and secondary education, higher education, public welfare, transportation, or health and hospitals) are first totaled. This total indicates the state’s per capita spending on a standard expenditure package. This package identifies an overall fiscal need index for each state. Massachusetts, for example, accounted for about 1.81 percent of the national workload measure for highways for FY1997, a fiscal year in which all states spent $82.06 billion on highways. With a workload share of 1.81 percent, Massachusetts might have spent about $1.49 billion (= 0.0181 ⨉ $82.06 billion), with per capita state spending at $243 (when divided by the 6.1 million residents of Massachusetts of that year). When the latter was divided by the national average, Massachusetts’ average was 81 percent. This process was repeated for all expenditure categories to obtain fiscal need indices (Ryu, 2014, p. 188).

The fiscal comfort index is computed by dividing the fiscal capacity index based on RTS by the fiscal need index. The fiscal comfort index shows the relative fiscal capacity compared with fiscal needs in each state (Ryu, 2014, p. 188):

Robert Tannenwald, who created the  Fiscal Comfort Index   Formula , used the following examples to measure fiscal comfort and the disparity between states that it illustrated. In 1996, Tannenwald estimated Connecticut’s fiscal capacity index (from data obtained through its representative tax system) at 129, and its fiscal need index at 102. Using the formula above, he arrived at a fiscal comfort index of 1.26 for the state of Connecticut, at the time one of the nation’s highest. Mississippi, which had among the lowest fiscal comfort indices at 0.65, had a fiscal capacity index of 72 and a fiscal need index of 110 (Tannenwald, 1999).

 

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There are numerous suggestions for revising the above fiscal capacity measures. Since property values are dependent on periodic surveys, some states use the market value data of properties instead of complete assessments, which are available at the time that fiscal capacity measures are computed. Since remote sales (such as those over the Internet) are usually excluded from the sales tax base, adjustments must be made to account for lost sales tax base from remote sales.

Budgeting at the Micro Level

Methods of Analyzing Public Budgets

At the micro level of budgeting, the ultimate goal is to have a set of guidelines to assist in making decisions. Analyzing concepts and frameworks provides a better understanding of situations, programs, and plans within a given timeframe. When conducting an analysis, a public manager asks and answers questions to make informed budgeting decisions and to review alternative decisions. These questions can be part of a formal analysis or an informal one. There are four kinds of analyses generally seen in the public sector: political, empirical, cost, and system analysis.

Political Analysis

Political analysis is based on knowledge of political events found in historic, journalistic, or political science accounts of public affairs. With a political analysis, alternatives must be considered in respect to how accepted and preferred they will be political. Some alternatives may not be considered at all because they are not politically acceptable, while political preferences may give others more gravity. Opinions, values, goals, or purposes can all be taken into consideration when determining whether people will tend to support, oppose, or stay neutral on particular alternatives from a political standpoint (Swain, 2010, p. 145).

Empirical Analysis

Empirical analysis requires that a budget-related phenomenon is defined in terms of what has been observed previously and first-hand. It employs information from sense observations, including instrument-based ones, to create a full analysis and to provide indisputable evidence. With an empirical analysis, all observers who follow the analysis’s procedures will make identical observations. But only sense observations can be addressed using this type of analysis. The existence of disputed beliefs, opinions, and accounts of particular events can be observed, but the truth of the beliefs, opinions, or disputed events cannot be analyzed (Swain, 2010, p. 149).

Cost Analysis

Cost analysis addresses the merits of alternatives by estimating costs for current situations or forecasting them for future situations. Cost is a negative impact that is usually measured in monetary terms, and positive impacts can take the form of effects in cost-effectiveness analysis or benefits in this type of analysis.

Cost analysis has three common forms, each of which uses a different comparison basis:

· Simple cost analysis compares costs alone. It is the simplest, easiest, and most accurate form of cost analysis.

· Cost-effectiveness analysis compares the costs per common unit of positive impact (output or outcomes).

· The cost-benefit analysis compares the net difference between benefits and costs (benefits minus costs). It is the most difficult and complex form of cost analysis, and often the least accurate as well (Swain, 2010, pp. 153-154).

System Analysis

System analysis is concerned with the relationship between elements. The boundaries of each system are identified to recognize similarities. A system can be defined as two or more elements that interact. In other words, when one element changes one or more other elements change. The elements within a system are expected to be related, and analysts look at systems only in respect to how they interact with others. Analysts can develop abstract models of systems and manipulate the relationships within models (Swain, 2010, p. 158).

Accounting

Accounting  is essentially scorekeeping as a function of gathering, manipulating, storing, and reporting relevant financial information. At the macro level are funds that are broken down into accounts. In the public sector, accounting systems are divided into funds for the sake of tracking information within particular areas. The general or operating fund is used to account for whatever is not accounted for in any other fund. A smaller organization may have only a single fund. Each fund is divided into accounts.

7 BASIC KINDS OF ACCOUNTING ORGANIZED INTO 3 GROUPS

REAL ACCOUNTS

Real accounts  include asset, liability, and fund balance accounts. Assets are things that are owned, such as cash. Liabilities and fund balances are things that are owed. Liabilities are owed to others, while fund balances are owed to the organization itself.

BUDGETARY ACCOUNTS

Budgetary accounts  are estimated revenues and appropriations (authorized expenditures), which include expenses such as estimated property tax revenues and appropriations for supplies.

NOMINAL ACCOUNTS

Nominal accounts  include revenue and expenditure accounts that show financial actions of collecting and spending money, such as property tax revenues and supplies expenditures. The actual number of accounts may range from a few to hundreds (Swain, 2010, p. 165).

BASIC FUND ACCOUNTING EQUATION

Assets + Expenditures + Estimated Revenues = Liabilities + Revenues + Appropriations + Fund Balance

Public organizations use an annual accounting cycle of opening, operating, and closing the accounting system (often called “the books”). At the beginning of a fiscal year, the books are opened with all accounts empty; information in specific accounts for real budgetary accounts is placed in the system. Annual financial reports for the previous year provide real account information, while budgetary account information comes from an approved budget. Over the course of the fiscal year, transactions having to do with real and nominal accounts are recorded in the books. When the books are closed for the fiscal year, accounts are closed or removed from the system—first the nominal and budgetary accounts, and then the real accounts.

The Future of Annual Revenues and Expenditures

FORECASTING

Forecasting  refers to predicting the future of annual revenues and expenditures. All forecasting techniques rely on some initial opinion or assumptions. The purpose of forecasting is to provide reasonably accurate information about actual events before they occur so that the best financial decisions can be made. Annual budgets involve forecasts that depend on annual revenues to a certain degree. Errors can and should be expected when forecasting, where accuracy is greatly limited. When errors are made, there are three primary ways of dealing with them: intentionally building a bias toward safety, monitoring actual values relative to forecast ones, and making arrangements for or actually taking corrective actions to prepare.

3 TYPES OF FORECASTING

OPINION FORECASTING

In opinion forecasting, one or more opinions are examined. The person or people who provide the opinions decide what information is relevant and how it relates to the prediction. If a forecast is based on multiple opinions, it may go through a review of initial opinions, averaging, or selection of a predicted range or median value. Opinion forecasting is the quickest, easiest, and most cost-efficient method, and it works best for public organizations and where a high degree of uncertainty or small monetary values is involved.

TREND FORECASTING

In trend forecasting, it is assumed that the future will resemble the past for the items predicted, and one or more actual values will serve as the basis for a forecast. The simplest trend forecast is that a future value will be the same as a past value. More complex trend forecasts use averages, weighted averages, or more complex calculations to approximate averages more practically. Trend forecasting is politically neutral when consistently implemented.

CASUAL FORECASTING

In causal forecasting, the opinion that one item can be predicted on the basis of one or more other items is relied upon. Two quantitative specifications are required for using this technique. First, there must be a mathematical relationship between what is being predicted and the predictor variables. Second, a value or values for the predictors must be known. Mathematical problems involving a range of two variables in one equation too many variables in many equations must be involved in causal forecasting (Swain, 2010, p. 171-174).

Auditing

The city of El Paso, TX, has an  Internal Audit Office  “to provide independent, objective assurance and consulting services designed to add value and improve the city of El Paso’s operations” (City of El Paso, 2018).

FORENSIC AUDITS Auditing  is often viewed very negatively as if it is conducted for the sole purpose of identifying and correcting wrongdoing. One type of auditing, forensic auditing, involves investigating the possibility of criminal wrongdoing that has taken place in regard to financial records or accounting systems. However, most audits are simply reviews of financial resource matters by people outside the situation who are not involved in handling the resources. They provide assurances that financial resources are being handled properly.

PRE-EVENT, POST-EVENT, INTERNAL, AND EXTERNAL AUDITSMost audits fit into four categories: pre-event, post-event, internal, and external audits. Pre-event audits are reviews to determine whether an expense is authorized to be made or not. Post-event audits rely on documentary evidence after the budgetary event has occurred. Internal audits are conducted by people within the organization, and they are generally narrow in scope and do not span across several fiscal years. External audits include post-event audits and are conducted by people from outside of an organization or agency. These audits are generally for a full fiscal year period or span across several fiscal years.

REQUIRED EXTERNAL AUDITSMost states require local governments to agree to external audits of their finances once a year. The federal government has its own external auditing agencies, as do several states. Local governments and nonprofit organizations typically hire private firms to conduct external audits. Whatever the case, auditors involved in external audits must be completely independent of the agency or organization they are auditing. Formal reports are submitted to top policymakers and occasionally the public following an external audit.

FINANCIAL, COMPLIANCE, AND PERFORMANCE-RELATED AUDITSOther categories of audits include financial, compliance, and performance-related audits. Financial audits focus on the accuracy of an organization or agency’s annual financial reports and how well “generally accepted accounting principles,” (required accounting standards) are followed. Compliance audits determine whether relevant laws, regulations, and guidelines have been followed by reviewing evidence of how resources have been handled. Performance-related audits determine whether an organization or a program is operating economically, efficiently, or effectively. These types of audits typically focus on effectiveness.

Budgeting at the Macro Level

3 FUNCTIONS OF GOVERNMENT

At the macro level of budgeting, the three functions of government include the allocation of resources, the distribution of wealth, and the stabilization of the economy by regulating growth, employment, and prices. Note: These functions are interrelated in the mind of the economist, although each must be considered separately.

· Allocation  refers to directing or applying resources to various uses, goods, or services.

· Distribution  refers to imposing costs and giving benefits to various members of the public.

· Stabilization  refers to regulating a whole economy with respect to growth, employment, and prices.

ALLOCATION AND DISTRIBUTION FUNCTION

Allocation concerns government intervention in economic activities, which results in different allocations from those that a completely free market would produce. Governments allocate resources by choosing what goods and services to provide and then secure the resources needed to provide those goods. Governments also determine how much of the economy it should control and how much the private sector should control.

Distributive function concerns how the government affects the distribution of costs and benefits throughout society. Governments collect revenues through taxes that impact different members of the community differently. Many services also have different impacts on community members as wealth is redistributed from some people to others. Economists examine the people with varying incomes or wealth in different situations to see how revenue measures impact them differently. For example, sales taxes and Social Security taxes affect the poor disproportionately, while income taxes have disproportionate effects on the wealthy.

The Classical Approach

The  classical approach  to budgeting can be summarized as follows:

· It analyzes the labor market;

· It links savings and investments to interest rates; and

· It consists of a price level theory.

One of the backbones of the classical approach, Say’s Law, states that every supply creates its own demand. In other words, production creates sufficient income for workers to buy back what has been produced. As a result, the supply of and demand for goods and services will eventually reach a market equilibrium and the labor market will automatically maintain equilibrium at a full-employment level. Thus, governmental intervention in the private market system is unnecessary (Ryu, 2014, p. 218).

When consumer-workers save their income for future consumption, business firms can borrow from the savings at a lower interest and expand their investments for production. Savings will translate into business investments through interest rate changes. When the money supply increases, the only thing that changes is the overall price level, with no change in real output.

The Keynesian Approach

Keynesian Approach and Quantitative Easing

The  Keynesian approach  focuses more on the capacity of the national economy than just the labor market. When businesses anticipate that workers will buy their product (“aggregate demand”), they tend to produce more of it. Accounting for the entire economy means accounting for natural expansions and contractions, leading to a level of unemployment that is not due to laziness or other moral deficiency. As such, there is no guarantee that goods and services produced would be consumed, and an imbalance in supply and demand results. The result then would be an economy that is unable to maintain full employment. Therefore, government intervention is sometimes required to optimize the national economy, especially through increased money injection to boost demand for goods and services. Another tool that the federal government could use is to cut taxes, which would give taxpayers more money to spend to stimulate the economy. A third option is for the  Federal Reserve Bank  to buy U.S. Treasury bonds, known as  quantitative easing .

Main Emphasis

The keynesian economic theory emphasizes four main points:

1. Actual output is determined by the total level of demand for goods and services;

2. People tend to treat money as wealth and not just a medium of exchange;

3. The greatest output occurs by manipulating demand and the quantity of money; and

4. Government intervention in the economy is essential to smooth out the business cycle and mitigate economic recessions and depressions.

Recession Example

An excellent example of how Keynesian economics functions came at the commencement of the Great Recession in late 2007 and early 2008. Keynesian economists contended that the market crash resulted from a market system, and especially a housing market, that was malfunctioning. The  American Recovery and Reinvestment Act of 2009  was put into place as the government’s response to this downturn. The federal government then issued Build America Bonds to stimulate infrastructure and development spending at the local level. Over $777 billion in tax benefits, contracts, grants, and loans were distributed as a result of this government intervention.

Concerns

There are some concerns about the Keynesian model. The increases in federal government spending and future deficits that it calls for nearly always result in higher income taxes. Overall productivity tends to decline when federal spending moves from productive investments to redistribution of wealth. The Keynesian model also ignores the costs of the regulations it demands, and its focus is primarily on short-term economic impacts, not the medium and long-term fiscal multiplied negative effect that these resulting factors are likely to produce.

Tools for Managing the Federal Budget

· The Budget of the U.S. Government  (Fiscal Year 2018) shows budget totals and deficits from the past and projections into the future.

· The National Priorities Project  uses information pie charts that give you a visual picture of how money is spent.

Congress has a few tools it can use to manage the federal budget. For example, in order to bring down the annual deficit, Congress enacted the  Budget Control Act of 2011 , which stipulated across-the-board cuts in discretionary spending when the federal deficit continues to rise even with other budget control measures. It set into motion a sequestration of the federal discretionary funds beginning in 2013 to continue until 2021. This means that around $85 billion of across-the-board spending authority would automatically be cut for each fiscal year. Before this, the  Budget Enforcement Act of 1990  imposed enveloped sequestration on defense, domestic, and international discretionary spending.  The Pay-As-You-Go Act (PAYGO) of 2010  mandated that all new legislation that increases direct spending or reduces revenues had to have a neutral impact on the deficit.

Congress often sets targets for tax revenues, expenditures, deficits/surpluses, and debt limits through budget reconciliation resolutions. As you can imagine, partisan politics plays a major role in any budget passed by Congress. Successful implementation of congressional macro budgeting has met a number of challenges. Entitlement and other programs have been exempted from sequestration procedures, killing many macro budgeting tools before they could even be put into effect. The burden of congressional macro budgeting tools was placed mostly on discretionary spending. Furthermore, when the economy was growing, congressional macro budgeting tools were used to cut taxes, leading them to be politically dominated.

Managing Federal Bonds

The final aspect of macro budgeting to be discussed is managing federal bonds. Bonds are promissory notes that are sold at a discount rate that can be redeemed for face value after a period of time. These bonds are referred to as  term bonds , and they are the most common of the U.S. Treasury bonds even though  serial bonds  are more frequently used.

There is a difference between federal deficits and debt. Federal deficits occur when annual expenditures exceed revenues and are normally funded by borrowing money, resulting in national debt. Deficits are relative according to time, while debt is absolute. The  national deficit in 2015  was less than $500 billion, while the national debt in 2015 was over $18 trillion. Most of the federal debt (over 85 percent) is held by Americans or American companies, banks, and investment firms (Patton, 2015).

The  U.S. Treasury  finances the nation’s debt by issuing securities, or government debt instruments, commonly known as Treasury bills, notes, and bonds. Treasury bills usually mature in just one year or less, while Treasury notes usually take between two and ten years to mature. Treasury bonds mature in anywhere between 20 to 30 years. The Federal Reserve Banks are required to hold collateral equal in value to all Treasury securities and bonds sold. Since 2012, the management of the national debt has been arranged by the  Bureau of Fiscal Service .

Conclusion

Reflection:

· Which type of equity is fairer where taxation is concerned, horizontal or vertical? Why?

Taxation is the key source of revenue in the budget process, whether the budget concerned is a federal, state, or local one. The type of equity that should be adhered to when determining fair tax rates debates whether people should pay based on ability or on the services they use. At the micro level of budgeting, the ultimate goal is to have a set of guidelines to assist in making decisions, a process which involves four types of analysis: political, empirical, cost, and system analysis. Methods of revenue in micro budgeting include accounting, a function of gathering, manipulating, storing, and reporting relevant financial information; forecasting, or predicting the future of annual revenues and expenditures; and auditing, which involves reviewing financial resource matters by people outside the situation. At the macro level of budgeting, the three functions of government include the allocation of resources, the distribution of wealth, and the stabilization of the economy by regulating growth, employment, and prices. The classical approach focuses on analyzing the labor market and linking savings and investments to interest rates, while the Keynesian approach focuses more on the capacity of the national economy than just the labor market.

References

American Recovery and Reinvestment Act, Pub.L. 111-5. (2009). U.S. Government Publishing Office (GPO). Retrieved from https://www.gpo.gov/fdsys/pkg/PLAW-111publ5/pdf/PLAW-111publ5.pdf

Board of Governors. (2018). Recent Developments. Federal Reserve System. Retrieved from https://www.federalreserve.gov/

Budget Control Act, Pub.L. 112–25, S. 365, 125 Stat. 240. (2011). U.S. Government Publishing Office (GPO). Retrieved from https://www.gpo.gov/fdsys/pkg/PLAW-112publ25/pdf/PLAW-112publ25.pdf

Budget Enforcement Act, Pub.L. 101–508, title XIII; 104 Stat. 1388-573, 2 U.S.C. & 15 U.S.C. § 1022. (1990). U.S. Government Publishing Office (GPO). Retrieved from https://www.gpo.gov/fdsys/pkg/USCODE-2010-title2/html/USCODE-2010-title2-chap20-subchapI-sec900.htm

Bureau of the Fiscal Service. (2018). The New Bureau of the Fiscal Service. U.S. Department of the Treasury. Retrieved from https://www.fiscal.treasury.gov/

Burman, L. E., Gale, W. G., Gault, S., Kim, B., Nunns, J., & Rosenthal, S. (2016). Financial Transaction Taxes in Theory and Practice. National Tax Journal, 69(1), 171-216. doi:http://dx.doi.org.ezproxy2.apus.edu/10.17310/ntj.2016.1.06

City of El Paso. (2018). Internal Audit. El Paso City Hall. Retrieved from https://www.elpasotexas.gov/internal-audit

Encyclopedia Britannica. (December 29, 2017). Keynesian Economics. Encyclopedia Britannica, Inc. Retrieved from https://www.britannica.com/topic/Keynesian-economics

Lang, B. J., & Sonstelie, J. (2015). The Parcel Tax as a Source of Local Revenue for California Public Schools. National Tax Journal, 68(3), 545-571. doi:http://dx.doi.org.ezproxy1.apus.edu/10.17310/ntj.2015.3.03

National Priorities Project. (2018). Federal Spending: Where Does the Money Go? Federal Budget 101. Institute for Policy Studies. Retrieved from https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/

Oates, W. E., & Fischel, W. A. (2016). Are Local Property Taxes Regressive, Progressive, or What? National Tax Journal, 69(2), 415-433. doi:http://dx.doi.org.ezproxy2.apus.edu/10.17310/ntj.2016.2.06

Patton, M. (April 24, 2015). National Debt Tops $18 Trillion: Guess How Much You Owe? Forbes Magazine. Retrieved from https://www.forbes.com/sites/mikepatton/2015/04/24/national-debt-tops-18-trillion-guess-how-much-you-owe/#45b8df987920

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Pierson, K., Hand, M. L., & Thompson, F. (2015). The Government Finance Database: A Common Resource for Quantitative Research in Public Financial Analysis. PLoS One, 10(6) doi:http://dx.doi.org.ezproxy2.apus.edu/10.1371/journal.pone.0130119

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