Question

What are the major funding sources for the federal government, and state and local government? Please discuss major differences between federal government and state and local government financial sources. Also, how it is possible for the federal debt to increase in a year when the federal government has a surplus?

Answer 1

The major source of funding for the federal government is Individual income taxes, payroll taxes and corporate taxes whereas for State and local government is property taxes and sales and gross receipt taxes.

The major difference is that the federal government constitute as a source of funding for State and local government whereas vice versa is not possible.

Even even in case of surplus the federal government has years and years of deficit two covers this situation the government has to borrow funds which cause the situation of increase in debt. So even the government has surplus but to cover the prior years deficit they have to borrow the funds through which debt increases.