There are basically three levels of government in the United States: the federal, state and local government. However, their sources of revenue vary depending on their categories and scope of jurisdiction (Rueben and Carol, 2008). Despite the fact that the federal government gets the highest amount of tax, it is noted that the state and local governments have various options as far as taxing is concerned (Rueben and Carol, 2008). The sources of revenue for the federal government include the federal taxes (corporate and individual taxes, excise taxes, capital gains taxes, social security taxes, estate and inheritance taxes), borrowings such as treasury bonds and the user charges (Holcombe, 2006). For the state governments, the revenue sources include intergovernmental transfers, state taxes (corporate and individual taxes, sales taxes, estate and inheritance taxes, fuel taxes and special products taxes), licenses, lottery and borrowings, for instance state bonds (Holcombe, 2006). The local governments rely on intergovernmental transfers, local taxes (sales taxes and property taxes), special assessments, user charges and borrowings such as local bonds, as their revenue sources (Holcombe, 2006).
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Differences in the revenue sources for the three levels of government exist because there are differences in the scope and roles of each government (Brunori, 2007). The federal government, for instance, collects a higher amount of taxes, which is actually its major source of revenue, considering the fact that it is charged with a higher responsibility of managing the country’s economy (Brunori 2007). There is logic for this difference, since the federal government is the highest level, which therefore has to ensure that the other two levels become operational. The state and local government rely on the federal government for the revenues because they operate under the federal government (Williams et al. 2008). However, this division has a significant impact on the taxpayers and general economy. It basically provides an overview of how the taxes collected are distributed and utilized for the benefit of the general economy (Rueben and Carol 2008). This also explains the importance of taxes for the country’s economy.