The administration of the tax code and the economic growth are closely intertwined. The tax system is the foundation stone of our system of laws and taxation. Taxation is the use of force or threat of force to collect a debt from a party or to acquire a right. In the United States, taxes are collected by state governments and sometimes federal government agencies. Federal taxation is often considered automatic, however, state tax systems may require the voter to vote for a tax levy or for an annual tax election.
The tax code is an important tool that controls the allocation of scarce public resources, the amount of growth in revenues and the ability of the government to finance its programs and activities. Without a sound tax policy, tax collections become unmanageable. Policy makers must consider the distribution of tax burdens, both direct and indirect, along with the revenue growth they desire for their jurisdictions. While tax policy is not the most crucial area of the tax code, it is an area that should be thoroughly understood and well thought out prior to making broad policy decisions.
It is also important to understand that economic development is intimately connected to tax policy. Without economic development, no tax can be levied. For example, a tax that decreasing income from tourism, while at the same time increases a tax on gasoline would have absolutely no economic development impact whatsoever. Therefore, it is important to pay close attention to the type of tax and what it does to the economic model. Economic development is directly related to tax policy and tax rates; therefore, it is important to understand how the two are interdependent. A good example of this inter-dependency is illustrated by the way that pollution acts to reduce the national income of a country by decreasing the tax base.
As with any other human endeavor, proper tax policy and economic development are a sure way to achieve goals. That being said, there are some tax policies and economic developments that seem to always be favored, regardless of whether they are good for the overall economy or not. These tax policies generally seem to be business-friendly and/or supply-driven, which in turn seem to always be favored by political leaders and their voters. Perhaps this is because business-friendly and supply-driven tax policies will generally help the business community in their own efforts to increase productivity and create new jobs. Political leaders may support tax cuts because these seem to be a good investment for the political leader and the country.
Other tax policies and economic development strategies are not business-friendly or supply-driven, but they do have a positive effect on the overall economy. A popular example of this would be estate tax policies. Estate tax policies decrease the value of a person's property and at the same time increase the amount of taxation paid overtime. However, estate tax policies have positive economic development impacts because they encourage investment in education, research, and infrastructure, which will increase employment opportunities in the long run.
Another example of a tax policy and economic development strategy that does work is sales tax policy and economic development strategy. Sales tax decreases the cost of purchasing goods and services from a business, which then increases the level of production and employment in the business. This is done in return for a share of the profits from this increased production. This is a type of tax policy and economic development strategy that many states and counties to implement, but the amount of . . . . . . states' revenue generated from sales tax decreases annually.
Business tax policy and economic development strategies can also have an effect on growth in the economy. When a business operates in a state or county, the state or county often requires the business to obtain a percentage share of the profits earned within its operations. This percentage share is referred to as the franchise tax. The presence of the franchise tax can decrease the value of a business due to the loss of potential sales and revenue generated within the business itself.
There are a few other types of taxes that can directly affect the level of economic development. These include property tax and real estate valuation tax. These types of taxes are often used to help finance schools, roads and infrastructure, and provide local services like water and sewer treatment. The presence of these taxes often affects growth because they increase the price of local goods and services. It is important for taxpayers to pay close attention to these types of taxes when planning their economic development strategies. Paying attention to the tax code can help taxpayers understand their tax obligation, and how it will affect their bottom line.