Local government revenues must adequately fund the public services that a community desires without creating excessive inefficiencies or unfairness in the revenue raising system. However, local government revenue structures are largely based on assumptions that no longer hold today due to digitization, globalization, demography, political changes, and other trends. Furthermore, fairness is becoming an increasingly important concern for public finance. It follows that this concern should include how revenues are raised. For these reasons, the Rethinking Revenue project is taking a fresh look at how revenues are raised. The project will raise new and interesting ideas for local revenue systems and will produce guidance for state and local policy makers on how local government revenue systems can be modernized.
New Research: Rethinking Local Government Revenue Systems
Rethinking Revenue is about providing local governments with the ability to raise enough revenues for the services their communities need—and to raise those revenues fairly and in a way that is consistent with community values.
When local government revenues aren't aligned with modern economic realities, we believe this contributes to distortions in the economy and unfairness in how taxpayers are treated. For example:
- Property Tax: A large part of the value created in the modern economy does not involve property—it often involves less tangible things, like financial instruments or bits and bytes.
- Sales Tax: Only recently, have sales taxes been applied to online sales. Though this has helped keep the sales tax more relevant, sales taxes are routinely not applied to many services.
- Fines and Fees: Many local governments have become more reliant on fees and fines. Fees and fines are appropriate in many cases because the person who benefits from the service pays for it. However, overuse of fees and fines can lead to unfair and counterproductive outcomes for citizens.