PUBLIC REVENUE

Governments must have funds, or revenue, to pay for their activities. Governments generate some revenue by charging fees for the services they provide, such as entrance fees at national parks or tolls for using a highway. However, most government revenue comes from taxes, such as income taxes, capital taxes, and sales and excise taxes.
An important source of tax revenue in most industrialized countries is the income or payroll tax, also known as the personal income tax. Income taxes are imposed on labor or activities that generate income, such as wages or salaries. In the United States, income taxes account for about half of the total revenue of local, state, and federal governments combined. The federal government, many state governments, and some local governments levy personal income taxes.
Another important source of government revenue is the capital tax. Capital includes items or facilities that generate profits, such as factories, business machinery, and real estate. Some types of capital taxes are known as “profits” taxes. One kind of capital tax used by the federal government in the United States is the corporate income tax. A property tax is a capital tax used by state and local governments. Property taxes are levied on items such as houses or boats.
Sales and excise taxes are also a major source of government tax revenue. Many state and local governments levy a sales tax on the purchase of certain items. Consumers usually pay a percentage of the sales price as the tax. Excise taxes are used by all levels of government. An excise tax is levied on a specific product, such as alcohol, cigarettes, or gasoline. The tax is usually included in the purchase price.
In Canada and many European, South American, and Asian countries, a value-added tax (VAT) provides significant revenue. The VAT is levied on the value added to a product during production as its components are assembled into final goods. For example, a clothing manufacturer might spend $500 on fabric, thread, zippers, and other goods required to make dresses. The manufacturer then adds $1,000 to cover the costs of labor and the use of machines and equipment and sells the dresses for a total of $1,500. The value-added tax is paid on this $1,000.

Contributed By:Robert H. Haveman
Source : Microsoft ® Encarta ® 2006.