Question

Identify the various and specific taxes that federal, state, and local governments utilize to fund the public sector. What are the impact of these taxes on both the producer and consumer? How do these taxes affect you?

Answer 1

At the Federal level of government, the major sources of revenue are individual income tax, social insurance (payroll) taxes, corporate income tax and excise tax. The largest expenditure includes retirement benefits (Social Security), national defense , health care (medicaid and medicare), or interest on the public debt. State governments depend largely on intergovernmental revenues (sales and excise taxes), and personal income taxes. The largest expenditure is on education, medicaid, and transportation. Local government’s major sources are transfers and grants from the Federal government; and largely spend on schools and public assistance

With the implementation of a tax, the consumer and producer surplus could both fall. The altered price that taxes present can result to the market inefficiency, because producers may reallocate their resources for the production of other goods with lower taxes or consumers can even reallocate their disposable income for purchasing similar substitutes other than the taxed good. Since I am consumer of a good thus imposition of tax have reduced my surplus too.