Governments generate revenue from two sources, namely, public revenue and public borrowing. The money received by a government from the public authority, which is in the form of tax and non-tax sources, is referred to as public revenue. The government has no obligation to return the money to the sources from which it was obtained. Contrary, the money borrowed by the government is referred to as public borrowing. The government can borrow money from internal sources (sources within the United States) or external sources (obtained from other countries). Public borrowing carries with it the obligating to return the borrowed money back to where it has been obtained. In this paper, how governments generate public revenue will be discussed.
A government obtains its public revenue mainly from two sources, namely, its own source revenue and transfers from other government sub-sectors. With regard to its own source revenue, a government generates public revenue from its own imposition of a tax and a license (Bhattacharjee & Baid, 2018). Governments usually impose different forms of taxes, such as personal income tax, consumption taxes, and social insurance plans (Ingram, & Hong, 2010). With regard to transfers from other government sub-sectors, governments can receive money directly from other government sub-sectors without a direct impost by the receiving party. One aspect of revenue generation that will be discussed in detail is revenue generates from taxes –income tax, consumption tax, and property and related taxes.
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Income taxes encompass general levies on personal income, corporation income, and other income taxes (Bhattacharjee & Baid, 2018). Governments usually impose levies on the income of individuals and unincorporated businesses. Governments also impose federal, provincial, and territorial taxes on taxable profits of corporations. Other forms of taxes imposed by governments include taxes on payments to non-residents, and mining and lodging taxes, which are levied on profits of natural resource-based industries.
The other form of tax imposed by governments is the consumption tax. These are taxes in the form of general sales tax, alcoholic beverages and tobacco tax, amusement tax, gasoline, and motive fuel taxes, custom duties, and miscellaneous consumption taxes (Bhattacharjee & Baid, 2018). With regard to general sales tax, governments usually impose taxes on the sale of goods and services. Governments also impose taxes on alcoholic beverages and tobacco. These taxes encompass special levies on the production and sale of alcoholic beverages and tobacco products. Amusement tax is collected from admissions to cultural activities, recreational activities, and other entertainment activities. Lastly, the government generates revenue from the imposition of taxes on gasoline and motive fuels.
With regard to property and related taxes, governments generate revenues from levies imposed on general properties, land transfer, wealth transfer, and investment income. The government imposes capital taxes on the paid-up capital of the corporation (Bhattacharjee & Baid, 2018). It also imposes levies on investment income. Investment income is divided into natural resource royalties, remitted trading profits, and interest income.
The primary way the government generates revenue is through taxation. The majority of tax revenues are from personal income taxes, followed by corporate taxes (Ingram, & Hong, 2010). Estate, gifts, and other forms of taxes account for a small percentage of federal tax revenues. However, it is vital to note that taxation is not the only way governments generate revenues. Other ways in which government generate revenue include license fee, fines and penalties, gifts and grants, the printing of paper money, and borrowing from the public and from foreign countries, agencies, and organizations.
References
Bhattacharjee, S., & Baid, T. (2018). Tax is a significant source of government funding in India. Journal of Management and Research Analysis, 5 (4): 128-133.
Ingram, G., & Hong, Y. (2010). Municipal revenues and land policies. Proceedings of the 2009 Land Policy Conference. Lincoln Institute of Land Policy. Cambridge: Massachusetts.
