Summary

From Facilitator's Guide for Teaching "Taxes: Where Does the Money Go? Federal, State and Local Government"

by Scott Loveridge, Liz Templin, Carole Yoho, and Nancy Lenhart.

• Our tax dollars go to pay for government services. While we may argue about the level of services to be provided, it is clear that we need government to provide some services. Crime, pollution, and the cost of many things we purchase from for-profit organizations would be higher without the services government provides.

• The size and functions of local, state, and federal governments have a lot to do with what services they provide and what type of taxes they collect. Each level of government tends to focus on different services and local services are usually the most visible.

• Education is the largest combined expenditure at the state and local level.

• Our tax bill (as a percentage of income) compares favorably to that of the other wealthy nations of the world, while our Minnesota state and local tax bill takes a higher proportion of our personal income than is taken by the state and local tax bills of most other states.

• The federal government is involved in the provision of a number of basic public services. It provides dollars to state and local governments in the form of intergovernmental aid. Often intergovernmental aid formulas are structured to: (a) lessen differences in the ability of states and localities to provide basic services and (b) provide incentives for state and local governments to provide services that are seen as underprovided.

• Federal aid as a percentage of state and local revenues has been declining.

• The state has the authority to mandate that services be provided by local government.

• Minnesota state government directs a large share of its state- raised revenue to local governments as intergovernmental aid to lessen inequalities between areas, to ensure provision of basic services, and to hold down local property taxes.

• Increasing budget pressures on the state government have led the state to reduce or change some of its aid programs for local governments.

• The Minnesota property tax system is complex. This complexity is a result of attempts to make the tax system more fair.

• Property taxes are calculated from the property's assessed market value, its classification rate, and the local tax rate. The tax rate is determined by dividing the total dollars to be raised with property taxes (tax levy) by the tax capacity. School districts get the largest share of property dollars.

• Taxpayers can ensure that they are paying the correct amount by checking the property assessment, classification, and homestead records for accuracy. Some taxpayers are eligible for circuit breakers and targeted property tax relief programs.

• Property taxes paid locally may increase due to seven factors. Five of the factors are controlled by the state. These are: changes in required levels of local services, changes in levy limitations, a decrease in intergovernmental aids, a change in the property classification system or a change in the property class rate. Other factors are an increase in the property's assessed value or an increase in the local government's budget.

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