Tax Revenue Analysis Project

Tax is a fee levied by the government on income, property, sales and other activities. New York is one of the few states in the United States having its own incomer tax as well as having the highest property taxes. In New York, every income-earning individual, trust or estate residing in the New York city are required pay personal income tax, and the government calculates taxes to be paid by tax payers based on the number of day an individual resides in the states. In New York City, tax rate on personal income range from 4% to 6.85% depending on the level of income. Pennsylvania also has its own personal income tax, which is about 3.07% on taxable income.

Additionally, New York City has property tax system levied on all properties. New York Department of Finance values all the residential and commercial properties located in the New York City, and the assessment of the properties for taxation is based on the percentage of market value of residential or commercial properties. Although, it is possible for property owners to challenge the taxes levied on the property if the owner does not agree. In New York city, property tax rates is between 10% and 17% and the rates depend on the type of property, and the government sent property bill in two semi-annual. In Pennsylvania, the state does not levy taxes on properties rather the taxation on property is reserved for the local government. Pennsylvania levies property tax on real estate, building or land. Unlike New York City, property taxes are based on millage rates where one mill is equal to $1 on every $1,000 of the property.

More importantly, New York City imposes sales tax on goods and services and the government imposes taxes on tangible goods such as food, clothing, and footwear. The government also imposes taxes on intangible goods such as barbing, credit reporting services or credit rating. Sales tax in New York City is 4.5%. Unlike the New York, Pennsylvania sales tax rate is 6.0%. Although, Pennsylvania does not levy sales taxes on items such as food, textbooks, most clothing apparels and drugs. Typically, both New York City and Pennsylvania derive significant amount of revenues from income taxes, sales taxes and property taxes.

Fundamental objective of the study is to provide Tax Revenue Analysis Ratios of New York City and Pennsylvania.

Overview of the State Revenue System

Government revenue is a source of fund for the government. It is a method by which government acquires funding for all projects. In the United States, government could raises revenue from the personal income tax, sales tax and property tax. While there is a difference in the total population of each state in the United States, the revenues accrued from the personal income taxes, sale taxes and property taxes are different based on the population of each state. In 2010, the total population of New York is 19,378,102, and the total population of Pennsylvania is 12,702,379. Based on the total population of New York and Pennsylvania, the ratio of population of New York and Pennsylvania is 1 to 0.52. The result shows that the population of New York is 45% higher than the population of Pennsylvania. (See Table 1).

Table 1: Population of New York and Pennsylvania

States

Total Population in 2010

New York

19,378,102

Pennsylvania

12,702,379

Source: U.S. Census Bureau (2012).

Based on the data provided in table 1, the study provides tax revenue analysis ratio for the New York and Pennsylvania.

Tax Revenue Analysis Ratios

The total operating revenue for the New York at the end of 2009 fiscal year was $17,209 million, which was approximately $17.2 billion. In New York, the operating revenue for 2010 fiscal year was $22,490 million, which is approximately $22.5 billion. As being revealed Table 2, the operating revenue consists of revenue derived from ticket, employer contribution, tuition and fees. The detailed of New York operating revenue is revealed in the Table 2.

Table 2: New York Operating Revenue 2009 ($ Million)

Operating Revenue ($ Million)

New York 2010

New York 2009

Ticket and video gaming sales

7,818

7,660

Employer contributions

8,603

3,582

Tuition and fees, net

1,552

1,454

Government grants and contracts.

1,468

1,676

Private gifts, grants and contract

Hospitals and clinics

1,723

1,596

Auxiliary enterprises

Other .

Total Amount

22,490

17, 209

Ratio: Operating Revenues/Population

888/1

1160/1

Source: State of New York (2010), State of New York (2009).

Based on the data collected, the ratio of operating revenue with the New York population is presented as follows:

At the end 2009 fiscal year, New York Operating Revenue and Population ratio is 17,209,000,000/19,378,102=888/1

At the end of 2010 fiscal year, New York Operating Revenue- Population ratio 22,490, 000,000 / 19,378,102= 1160/1

Based on the calculation, results of the Operating Revenues/Population for the New York at the end of the fiscal year 2009 reveals that New York provides operating revenue of $888 per each person resident in the New York. However, in 2010, New York has been able to increase the operating revenue by $1,160 per each person resident in the New York. Between 2009 and 2010, New York has been able to increase the operating revenue of each person resident in New York by 30.63%.

Table 3: Operating Revenues/Population of Pennsylvania ($million)

Operating Revenue

2010

2009

State Lottery Fund

3,053

3,088

Unemployment Compensation Fund

5,012

2,422

Tuition Payment Fund

Sales and services

5,011

2,422

Other.

0.556

0.587

NET OPERATING REVENUES

5,012

2,422

Total

18, 245.6

10,508.6

Ratio: Operating Revenues/Population

1436/1

827/1

At the end of 2009 fiscal year, the Pennsylvania Operating Revenue and Population ratio is equal to 10,508,600,000/12,702,379=827/1

At the end of 2010 fiscal year, Pennsylvania Operating Revenue and Population ratio is equal to 18, 245, 600,000/12,702,379=1436/1.

From the data presented Table 3, the results of the Operating Revenues/Population for the state of Pennsylvania at the end of the 2009 fiscal year shows that Pennsylvania provides operating revenue of $827 per person resident in Pennsylvania However, at the end of 2010 fiscal year, Pennsylvania has been able to increase the operating revenue by $1,436 per person. Between 2009 and 2010, Pennsylvania has been able to increase the operating revenue of each person resident in the state by 73%.

Ratio: Cash + Short-Term Investments/Current Liabilities

In accounting term, the current liabilities are the debts or obligations due within one year. Typically, current liabilities are the debts that an organization must pay within one year. In New York, $24,672 millions are recorded for current liabilities at the end of 2009 fiscal year. In the New York financial statement, current liabilities are recorded as liabilities due within one year. At the end of 2009 fiscal year, $9,631 million is recorded for cash and short-term investment and $10,715 million is recorded for cash and short-term investment in New York.

Table 4: Ratio: Cash + Short-Term Investments/Current Liabilities ($Million)

New York

Activities

2010

2009

Current liabilities

28,739

24,672

Cash+ Short Tem Investment

10,715

9,631

Ratio: Cash + Short-Term Investments / Current Liabilities

0.37: 1

0.39: 1

Pennsylvania

Current liabilities

15,100

12,700

Cash and short-term investments

15,300

15,000

Ratio: Cash + Short-Term Investments / Current Liabilities

1:1.01

1:1.18

Source: State of Pennsylvania (2009), State of Pennsylvania (2010), State of New York (2010).

Based on the data presented in Table 4, the ratio of Cash + Short-Term Investments / Current Liabilities in the New York at the end of the fiscal year 2010 and 2011 is almost the same. At the end of fiscal year 2009, the ratio is 1: 0.39 while the ratio of Cash + Short-Term Investments/Current Liabilities at the end fiscal 2010 is 1: 0.37. However, at the end of the 2009 and 2010 fiscal years, the cash position is less than one. The major factor leading the cash position to be less than one at the end of the fiscal year 2009 and 2010 is that the government has issued debts, which is not resulting in a capital asset and not related to the government activities. These outstanding debts include future tobacco receipts, state borrowing to finance bridge project and local highway. Typically, the cash position will be less than one in the state as long as the state continues to pursue other obligations rather than the acquisition of capital assets. Additionally, the cash position is less than one because there is an increase in unemployment within the state making the New York state government to increase the payment of the unemployment benefits. Typically, the “unemployment benefit payments for the Unemployment Insurance Fund exceeding employer contributions.” (State of New York 2010 P. 22).

Contrary to the data presented for New York with reference to the Ratio: Cash + Short-Term Investments/Current Liabilities, Pennsylvania recorded very close results on the ratio of Cash + Short-Term Investments/Current Liabilities for the 2009 and 2010 fiscal year, and the cash position is greater than one.

Per Capital Operating tax Revenue

This section examines the ratio of per capital tax revenues for the New York and Pennsylvania. The study evaluates whether per capital operating tax revenue is increasing or decreasing. Thus, the per capita tax revenue is presented in Table 5.

Table 5: Ratio: Per Capital Tax Revenue ($Million)

New York

Activities

2010

2009

Tax Revenue

$58,039

$55,804

Total Population

19,378,102

19,378,102

Ratio: Per Capital Tax Revenue

$2,995: 1

$2,880: 1

Pennsylvania

Tax Revenue

$28,300

$27,600

Total Population

12,702,379

12,702,379

Ratio: Per Capital Tax Revenue

$2,228:1

$2,173:1

The findings from table 5 reveal that both states record increase in per capital tax revenue at the end of the fiscal years 2009 to 2010. In the New York, the government realizes ratio of $2,880 per person in 2009. However, the par capital tax revenue increased to $2,995 per person in 2010. Thus, the per capita tax revenue is increasing in the New York. Similarly, Pennsylvania recorded ratio of $2,173 per person in 2009 however, the ratio per capital tax revenue increased to $2,228 at the end of the fiscal year 2010.

Answering the Research Question

Overview of the total revenue of the New York reveals the state increased the total revenue from $129 billion in 2009 to $149 billion in 2010 making the state to record the 15% increase in the total revenue. Despite the increase in the revenue, the state total expenses are greater than the revenue at the end of the 2009 fiscal year and at the end of the 2010 fiscal year. “The State’s governmental activities had total revenues of $125.9 billion, which were less than total expenses of $126.7 billion, excluding transfers to business-type activities of $2.2 billion, by $760 million” (State of New York 2010, P 19). Basically, the increase in the government expenses at the end of the 2009 and 2010 fiscal years was due to the increase in the unemployment benefits payments. Moreover, the government has the obligation to finance largest programs such as education, public welfare, public health, transportation, public safety and others. Similarly, Pennsylvania also recorded the increase in the total revenue at the end of the 2009 and 2010 fiscal years. The state revenue in 2009 was $61.2 billion. In 2010, the state revenue increased to $73.1 billion which was $11.9 billion increase in the revenue between 2009 and 2010. Likewise the New York, Pennsylvania also recorded higher expenses than revenue. In 2009, the total expenses were $65.9 billion which was higher than $61.2 billion of 2009 total revenue. In 2010, the Pennsylvania also recorded $74.6 billion as total expenses which was higher than the $73.1 billion of 2010 total revenue. Based on the budget deficits recorded by the New York and Pennsylvania, there are strategies that the two governments could employ to increase the revenue in order to balance the budget. One of the strategies to employ is to increase the taxation levied on wealthy people. There are several thousands people who are very rich in both states. The increase in the taxation on the rich will not affect their disposable incomes because of their income levels.

Moreover, the two states should increase taxation on tobacco. In both states, million of people smoke cigarettes. Increase in the taxes on cigarette will not make people to change their smoking habits. Thus, the increase in cigarette taxations will address the problem of government deficits.

Extent the tax meet or the nine criteria of the National Conference of State Legislature

National Conference of States Legislature states that high quality tax system should be complementary rather that contradictory. This means that the revenue system should minimize inconsistence. Based on the tax system of the New York, it is revealed that the tax system is not contradictory. From the financial record of the New York, all the revenue and expenses are listed and very easy to understandable. The only shortcoming of the tax system is that the financial record of New York only reveals that the government realizes revenue through taxation; the government does not provide comprehensive explanation on the amount realized from each category of tax such as income tax, sales tax, and property tax. Additionally, Pennsylvania tax system is also similar to the New York tax system, which does not provide the details of each category of tax in the state.

Equity: The equity refers to the individual ability to pay tax. New York and Pennsylvania taxation levy tax on individual based on the income. With the increase in the personal income, there will be an increase in the personal income taxation. Despite that the direct tax system reflects equity; there is no equitability in the indirect taxation charged by the two states. For example, a wealthy person within the state pays the same indirect taxes with low-income earners. Thus, there is no equity in the indirect taxes charged in the states. Additionally, there is a general believe that there is no 100% equity in the personal income tax in both states because there is a general opinion that wealthy people are paying lesser taxes because they are not being taxed based on their income.

Accountability: A high quality tax system should reflect accountability to taxpayers. Accountability in the sense that the tax law should be explicit and not hidden. Typically, the in-taxation policies should be written in a clear language with clear written notice, and notice to taxpayers of the increase in taxation should be in a clear method to enhance accountability. In the New York and Pennsylvania, there is accountability in the tax system because the tax system within the states is written in a very understandable language. Additionally, the states do not arbitrarily increase the taxes on an individual without the prior notice.

Neutrality:

“Tax neutrality is sometimes used to describe a tax system that does not create a bias that could influence a taxpayer to choose one investment or course of action over another. As used in this context, a neutral tax provision is one that permits the choice of investment or action to be made on the basis of market or personal considerations without influence from the tax laws.” (Kahn, 1990 P1).

While New York and Pennsylvania are doing all their best possible to implement tax neutrality, tax bias could not be totally eliminated. Kahn (1990) argues that the concept of neutrality in the state taxation is only used for political purpose. The author further argues that virtually all states in the United States implement tax bias. Typically, Pennsylvania does not implement tax neutrality with reference to property tax because the tax on property is based on millage rates. In the present global economic crisis, there have been drastic declines in the value of housing properties in the United States and despite the decrease in the value of the properties, tax policy makers may ask a property owner to pay the same tax paid before the decline in the market value of the property. Based on these criteria, Pennsylvania does not totally demonstrate element of neutrality in the property tax system compared to New York that imposes tax on properties based on the market values.

Competitiveness: With reference to the concept of competitiveness, the tax policy makers should use tax system as means of inter-state competition or international economic competition. Typically, the tax policy should be used for economic development. The tax systems in Pennsylvania and New York show that the states are conscious of the tax system of other states and they are trying to implement tax policies similar to other states. The tax policy makers in the two states know that the number of population of each state affect the level of revenue that the government would derive from taxation. Based on these criteria, the two states are trying to implement tax policy similar to other states so that they will not drive out taxpayers to other states.

Ranking of New York and Pennsylvania tax system to other similar jurisdictions

Tax systems of the two states are similar with other jurisdiction because all the states in the United States levy taxes on income, property, and sales. Despite the similarities of the tax systems of New York and Pennsylvania with other jurisdictions, the two states still implement little difference in the tax system with some jurisdictions in the United States. The states of Delaware implements tax system that is fair to the business organizations. . Typically, many businesses in the United States prefer to incorporate their business in Delaware because the tax policy in the state favors business owners. Based on the findings of the tax policies in the two states, there is a need to modify the tax policy to be well acceptable to business and residents of the two states. Typically, there is no evidence that the balance of tax and fees are appropriate because wealthy people in the states are paying lesser taxes than what they ought to have paid. Thus, there is a need to implement changes in the tax system in the two states. Income taxation should be reduced in the two states due to the present economic crisis in the United States. The taxes paid by wealthy people should be increased, and there should be an increase on tobacco tax to raise revenue.

Conclusion

The study evaluates tax system in the New York and Pennsylvania. Part of sources of revenues in the two states is from the taxes levied on personal income, properties and sales. Based on the analysis of the tax system in the two states, it is revealed that the governments are still recording deficits because the expenses are higher than the revenues. The study recommends that the two states should increase taxes paid by wealthy people and there should be an increase in the taxes imposed on tobacco.

References

Kahn, D.A. (1990). The Two Faces of Tax Neutrality: Do They Interact or are They Mutually Exclusive?. Northern Kentucky Law Review, Vol. 18, p. 1.

State of New York (2009). Comprehensive Annual Financial Report for Fiscal Year Ended 2009. New York State Government.

State of New York (2010). Comprehensive Annual Financial Report for Fiscal Year Ended 2010. New York State Government.

State of Pennsylvania (2009). Commonwealth of Pennsylvania Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009. Pennsylvania State Government.

State of Pennsylvania (2010). Commonwealth of Pennsylvania Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2010. Pennsylvania State Government.

U.S Census Bureau (2012).State & County QuickFacts. United States Government.