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The government has to plan annually for its expenditures as well as revenues. This forecast initiative is referred to as the government’s budget. The year in consideration is normally termed as the fiscal period. Imperatively, it should be noted that a fiscal year must necessarily coincide with the normal calendar year. In the U.S, the president proposes the budget to the congress. The congress consequently engage it its discussion. Finally, rational decisions concerning the priority areas and funding of the fiscal year are arrived at.
How and Where Revenues Are Derived
The federal government mainly gets its revenues through taxation. The government taxes individuals, businesses and the local authorities. The aim is to obtain the resources to finance various activities. These may include transportation improvements, provision of public utilities and sponsoring of major government agencies. The revenue also originates from income taxes. An example includes the ones chargeable on social security.
The congress also has power to impose taxes on imports and charge duties to raise revenue for the government. There are four major sources of government revenues within the U.S. These include the intergovernmental revenues and sales tax.
Employee contributions as well as the income tax also include other sources (Baumol & Blinder, 2012). The intergovernmental revenue is the largest contributor to the government revenue. It funds education, health and welfare among others. The sales tax is usually chargeable on goods and services that people purchase.
Governmental, Proprietary and Fiduciary Funds
The revenue collected by the government is meant for diverse purposes. Governmental funds generally refer to those that are obtained through taxation and levying of fees. They are also used for provision of services (Ruppel, 2010). They are normally categorized into general funds and special revenue funds.
Other categories include capital funds as well as the debt service funds. The general funds are for activities for which how the use of the money will not be accounted for. The special revenue funds are obtained from specific sources. The capital funds are for acquisition of capital goods. Finally, debt service funds are meant for acquiring resources for the repayment of long-term loans.
The government usually uses the proprietary funds to finance its activities that are of business nature. The proprietary funds are of two types, namely, the enterprise funds and the internal services funds. Accounting principles applicable in businesses within the private sector are also used when dealing with the proprietary funds.
The government usually holds funds in trust for the members of the public. These funds are the fiduciary funds. Some examples include pension for the employees that provide retirees with benefits (Gans, 2003). The fiduciary funds are categorized into agency and trust funds with the distinguishing feature being the period of existence of the fund.
Restrictions Placed on These Revenues
There are eminent restrictions normally placed on the use of the governmental, proprietary as well as the fiduciary funds. Restrictions are usually placed on governmental funds when there are certain rules placed on their use. The rules on their use can either be placed by external agents such as creditors, contributors or regulations that other governments have put (Ruppel, 2010).
The constraints on their use can also be put in place by law through provisions in the constitution. An example of such restrictions can be one that has been put in place by the constitution of the state. Restrictions can also be placed on proprietary funds by foreign parties or through provisions in the constitution. The composition of the difference between assets and the liabilities of proprietary funds can have restrictions placed on them. An example of this is assets being restricted for debt retirement.
How Public Policy Decisions Affect the Receipt of Revenues
Public policy decisions have various effects on the amount of revenue that is collected. The policy that any government adopts is either likely to increase or reduce the amount of revenue that it collects. If the government adopts a policy that aims at increasing the amount of money supply, it may decide to lower the tax rate (Baumol & Blinder, 2012).
This will have the effect of lowering the amount of revenue that it will collect. On the other hand, if the government policy aims to reduce the amount of money in circulation, it may decide to increase the tax rate. This will have the effect of increasing the amount of revenue that it will collect. Therefore, this shows that the policies that the government adopts may affect the amount of revenue that it collects.
Economic Conditions That Affect Revenue Projections
High gross domestic product (GDP) growth can enable the government to collect high revenue. However, increasing inflation usually has negative effect on demand and thus has negative effect on the GDP. This, therefore, means that an increase in inflation and slow growth rate can adversely affect the government revenue projections.
Negative economic conditions such as rising unemployment, rise in general price levels and declining consumer confidence have the combined effect of creating uncertainty (Baumol & Blinder, 2012). The government, when faced with economic uncertainty, cannot be able to make accurate projections on the amount of revenue it will collect.
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Baumol, W. J., & Blinder, A. S. (2012). Macroeconomics: Principles & policy. Mason, OH: South Western, Cengage Learning.
Gans, J. (2003). Principles of economics. Southbank, Vic: Thomson Learning.
Ruppel, W. (2010). Governmental accounting made easy. Hoboken, N.J: Wiley