Taxes in the U.S. are the primary revenue source for governments and governmental administration at all levels. Generated by levies on property, sales, income, and other sources, taxes fund public services and programs along with government payrolls and countless other things.
Our country’s tax system is not simple by any stretch of the imagination — taxes are anything but a “one size fits all” concept. There are different types of taxes, and each has its own set of rules, regulations, and rates. As such, dealing with taxes is a highly specialized task that should be undertaken by professionals who have backgrounds in finance and public administration, and have an understanding of what the different types of taxes are.
Individuals who are interested in this type of work can find satisfaction in public administration as it contributes to society while steering their organizations through complex financial waters. Degree programs such as a Master of Public Administration can provide the training needed for this function along with a general overview of the scope of public fiscal administration.
Types of Taxes
There are many different types of taxes paid by American citizens. Taxes fall into three basic categories: taxes on income, property, and goods and services.
Taxes on income include:
- Income tax: This tax stems from revenue earned through a job or a personal venture. It can also be generated from interest income. The federal government levies income tax and Investopedia notes that 41 states do the same. Additionally, some cities and counties may also levy an income tax. Current federal tax rates range from 10% to 37%, according to the IRS. State and city rates are typically lower. The current range of state taxes stretches from zero to 13.3% in California, according to the Federation of Tax Administrators.
- Payroll tax: This tax is deducted from an employee’s paycheck. The tax consists of two percentages per the IRS. The first tax at 7.65% funds Social Security, while the second tax at 1.45% funds Medicare. Employers are required to match both taxes.
- Capital gains tax. This tax is based on any profits earned after the sale of real estate, stocks, or other such assets.
- Estate tax: This tax is imposed after an individual dies and their property is transferred to a living person. This is a federal tax, although many states also impose this tax under different names like a death tax or an inheritance tax.
Taxes on property include:
- Property tax: This value-driven tax is levied on any property or real estate an individual may own. They are recurring in nature and commonly imposed by local government agencies. Homeowners typically handle this tax in one of two ways. They either pay it as part of their monthly mortgage payment, or they pay the tax outright once or twice a year.
- Real estate tax: This tax is based on the amount a person paid to buy a property. The amount of the tax itself is based on an assessment of the property’s value.
- Personal property tax: This is an annual tax on any mobile asset. These types of assets include RVs, mobile homes, cars, and boats. The tax amount is part of the asset’s registration or license fee, which the owner pays on an annual basis.
Taxes on goods and services include:
- Sales tax: These taxes are imposed on anything purchased as a retail transaction. The tax is percentage-based, determined by the price of the item being bought. It’s usually imposed by state and local government agencies.
- Excise tax: Unlike sales tax, which is driven by price, excise taxes are based on item quantity. For example, the federal government imposes a fixed 18.4 cent-per-gallon excise tax on fuel regardless of price, according to the U.S. Energy Information Administration. States may occasionally impose their own excise tax on top of federally taxed goods.
- User fees: These types of taxes are imposed on goods, services, and infrastructure components that an individual may utilize. These can include toll roads, utilities, hotel rooms, and airplane tickets.
- Sin tax: This tax is levied on certain products designed for adult consumption, such as cigarettes and alcohol.
- Luxury tax: This tax is levied on expensive items. Examples of these items include jewelry and luxury automobiles.
How Are Taxes Spent?
Federal and state/local taxes differ considerably in what taxes fund and how taxes are spent. The Center on Budget and Policy Priorities reports that in 2019 — the last full tax year before the COVID-19 pandemic — roughly 80% of tax income went to fund these five major items:
- Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) (25%)
- Social Security (23%)
- National defense and security (16%)
- Safety net programs (8%)
- Interest on the national debt (8%)
At the state and local levels, 22% of resources went toward K-12 education. Twenty-two percent was also allocated to public welfare plans such as Medicaid, Supplemental Security Income, and Temporary Assistance for Needy Families. Ten percent of tax spending went toward health and hospitals, and 9% went toward higher education.
The Role of Public Administrators
The income of a governing body may vary from year to year, depending on how, when, and why citizens are taxed. But the amount is fairly predictable. Unfortunately, it is not changeable. A government cannot go out and fundraise or increase revenue from taxes to make more money, like a for-profit company.
Public administrators understand this reality. Their job involves developing public administration budgeting strategies that work within the financial boundaries imposed by tax income — a situation that can be frustrating because the need always seems greater than the available funds. Advanced education can help public administrators successfully ensure a government agency runs smoothly, efficiently, and within budget.
Bring Financial Clarity to Public Administration
Taxes at the public business level can be convoluted. Public administrators with the skills to make sense of various federal, state, and local tax laws can be a valuable asset to any organization.
Ohio University’s online Master of Public Administration program is dedicated to preparing professionals for a career in public administration. The program, which is 100% online, allows students to gain an overview of the scope of public administration work while building skills in policy, finance, leadership, business, management, and communications.
Ohio University offers four concentrations: Crisis and Emergency Management, Public Leadership and Management, Non-Profit Management, and State and Local Government Management. Students can finish their degrees in as little as two years.
Learn how we can help you prepare for a bright future.
Seven Ideas of When Budgeting for Nonprofits
Strategic Planning for the Non-Profit Sector
10 Traits of a Successful Public Administrator
The Balance, “States Where Cities and Counties Levy Additional Income Taxes”
Center on Budget and Policy Priorities, “Policy Basics: Where Do Our Federal Tax Dollars Go?”
Federation of Tax Administrators, State Individual Income Taxes
Internal Revenue Service, “IRS Provides Tax Inflation Adjustments for Tax Year 2022”
Internal Revenue Service, “Topic No. 751 Social Security and Medicare Withholding Rates”
Investopedia, “How Does the Government Spend My Taxes?”
Investopedia, “9 States With No Income Tax”
Urban Institute, State and Local Backgrounders
U.S. Energy Information Administration, “How Much Tax Do We Pay On a Gallon of Gasoline and On a Gallon of Diesel Fuel?”