How Does the Financial System in the USA Work?


In the USA, all 50 states are formally endowed with autonomous rights in the financial area. They independently draw up, approve, and implement their budgets, which are not included in the country’s federal budget either in terms of income or expenditure. To some extent, they are independent in determining the volume of budgets, the structure of expenses, and income.

Different financial organizations like Payday Depot operate freely according to the laws of each state, and every citizen can benefit from them.

Budgets of the States

The federal government is not empowered to directly control state budgets. State governments do not report to the federation on the state of finances and budgets.

In most states, the head of executive power manages the preparation of the budget. Financial bodies subordinate to them perform this work. Estimates of costs are developed by budget and financial bureaus, and estimates of revenues are developed by tax and other authorities. The draft budget is sent to local legislative bodies.

The largest expenditures of state budgets are expenditures on education – 35%, social security – 13%, health care – 9%, road management, nature protection, housing construction, and communal services.

Local administrative units and functional bodies also have a certain autonomy in approving and implementing their budgets. They are not part of either the federal budget or the US state budget.

The functions of drawing up local budgets are entrusted to the heads of the executive power, and their approval – to representatives of the local legislative power.

More than half of the expenditures of local budgets are related to the financing of public elementary schools. In addition, a significant share of funds is annually allocated to the maintenance of roads, communal and municipal economy, fire protection, medical and other institutions.

Sources of Income

The main source of income for state budgets, as well as the federal budget, is tax revenue. In the post-war years, the role of personal income tax and mandatory contributions to social insurance funds in the composition of tax revenues increased significantly. Today, they make up more than 30%.

Another important source of income is sales tax – 29%. Individual income tax is 17%. The lack of own funds of the states is covered by financial support from the federal budget – 23% of the revenue part and revenues from the budgets of local authorities – 1.5%.

Sources of financing for local budgets include local taxes, revenues from communal services, subsidies from the federal budget and state budgets, and income from the issuance of local loans and lotteries. The main sources of income are local property taxes — their income share is about 29%.

Anyone can see all operations related to tax collection and spending on the websites of state governments and municipalities. It is a generally accepted rule that there are important documents in budget matters to which citizens should have access in America.

The Americans pay special attention to the simplified reports for citizens. They do not contain details but give an overview of the budget in a convenient form with elements of infographics.

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Christophe Rude

Christophe Rude

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