What is Tax Revenue?
Sales Tax is the largest source of revenue for states and Income Tax is the largest form of income for the federal government. Sales tax is a general tax which is levied on the consumer purchases of all products bought. It is added to the final price of the retail products. The merchants collect the sales tax at the time of sale and the consumer pays the final price along with the price of the product or service. Sales tax is an effective way for states to generate federal tax revenue.
How does federal tax revenue work?
The taxes collected from sales tax are then given to state tax collecting agency on either weekly or monthly basis. This is difficult to avoid because it is deducted along with the final price of the product. Hence, the revenue generated from sales tax is higher. Sales tax is a regressive tax because it is charged with the same percentage of both rich and poor. In this way, low-income people have to give a greater proportion of their income in sales tax compared to high-income people.
Other sources of Federal Tax Revenue
Funds From federal government; the state government gain revenue from the funds the federal government gives them. The funds are given to improve roads, hospitals, education and for welfare programs.
Income Tax; State also gains revenue from the income tax. The income tax collected from corporations is immense, this helps the state in funding rest of the state-related matters.
Intergovernmental transfers; A majority of the revenues for local governments come from intergovernmental transfers from state governments.
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