What are the sources of public funds?

Answer 1

The money that pays for government operations comes from myriad sources. The first and foremost that many people are aware of personally is taxes. You see them when you buy something, when you pay your annual property tax for your house or property and a number of other ways.

However, tax revenue is not the only fundraising governments can engage in. They can also be in the business of selling, borrowing and permitting.

1. Taxes

   • The most commonly known government revenue is taxes. These charges come in sizes big and small and no one's exempt from paying them. There are direct taxes such as the ones you see on your paycheck and there are trust contributions such as your required payment to Social Security and Medicare. Consumers are also all too familiar with the everyday point-of-sale charges such as sales taxes and value-added taxes.

   Which Tax Is Better?

   • Different governments put different weight on different taxes. In the United States, the income tax plays a major role and sales tax is left to local governments.

     Overseas, the point-of-sale charge is the main income driver for government programs. For instance, in Britain, the value-added tax (VAT) can generate up to 50 percent of the same government revenue as that produced by income taxes. So it's an important money source. Combined with duties on imports since Britain is an island geographically, the revenue reaches as much as 66 percent of income taxes.

     Neither tax is better than the other; instead, governments favor the ones they believe will generate the cash desired consistently.

   Licensing

   • Paying for a permit or license may seem like a tax as well and not much different, but it should be treated as a separate government revenue stream. The reason being is that many licensing and permit programs charge to pay for their particular oversight function.

     For example, a state Department of Motor Vehicles is supported by the fees it collects on driver's licenses issued. Parks and fish and game programs rely on their permits to stay in business and provide recreation and wildlife protection services for the public. And, more important, many licenses and permit revenues are purpose specific, which, unlike taxes, makes sure they are not used for general purpose spending in a government.

   Fees

   • Various governments also charge fees for things that they produce or take care of for the public. The amount of funding generated by these ventures is nowhere near the amount raised from income taxes, but it can still provide a significant funding source for a particular program. Products frequently include information products such as reports, manuals and guides. However, government sales can also include many fabricated products produced by prison labor, including office furniture, surplus equipment and vehicles no longer needed by agencies.

   Borrowing

   • Although not necessarily a source of free-and-clear funds, borrowing can be performed by the government to solve temporary cash flow issues. Governments frequently generate immediate cash for capital projects via borrowing. The money is paid back with interest over time, and the immediate cash flow allows the project to start without significantly denting the government's immediate budget.

     Governments also generate long-term borrowing through bonds and treasury notes. This returns ready cash to the government and provides investors a very safe place to invest money with passive income benefits that pay more than a savings account in terms of interest earned.