Around the middle of spring you’ll hear the moans and groans of distressed adults complaining about income taxes. Sure, we all know that it’s legally required, but do we really know why a substantial chunk of our income is being handed over to the government?
Regardless of whether we give a sigh of approval or whether we think it is totally absurd, understanding the true purpose of taxation is necessary for all taxpayers. Where does your money go? Let’s find out.
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In the smallest of nutshells, taxes are paid because the municipal, state, and national governments implement tax laws. Taxpayers’ money pays for government services of all kinds.
These governments are comprised of a number of parts: the legislators (those who make laws), executives (those who enforce laws), judges (those who decipher laws), and many others. The money received from taxes pays individuals who work for the government.
Although a legal requirement, paying taxes is also considered a civic duty. If you neglect to pay, the mediating body that oversees taxes (the Internal Revenue Service) will require that you do so, otherwise you might face penalties such as large fines or jail time.
Taxes can be found in a number of forms. Income tax is the amount you pay for working at a job. Depending on your income, a percentage of that money is withheld (removed from your paycheck and sent to the government). When you purchase items at a store, a sales tax is typically added to the price. Sales tax is a percentage of the cost of the good charged at the store. Owning property also requires you to pay taxes on the value of your property.
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The federal government collected $3.27 trillion in taxes in 2016. Here’s a quick glance at types of taxes paid in 2016 as percentages:
- Personal Income Tax: 49%
- Payroll Taxes: 31%
- Corporate Taxes: 11%
- Excise Taxes, Tariffs, Estate Taxes, and Earning from the Federal Reserve’s holdings: 8%
States government collected almost $1.7 trillion in 2013:
- Amount allocated from taxes collected by Federal Government: 31.3%
- Sales Taxes: 23.4%
- Universities, Public Hospitals, and Toll Roads: 18.5%
- Income Taxes: 18.4%
Municipal governments (cities, school districts, and counties) collected $1.5 trillion in 2013:
- Amount allocated from taxes collected by State Governments: 32%
- Property Taxes: 29.7%
- Water, Sewage, Parking Meters: 22.8%
- Federal Government: 4%
The money we pay fund many services. In addition to paying government workers, your tax dollars also help to support police and firefighters.
Tax money facilitates the safety and maintenance of the roads you travel on. Libraries, parks, and many other public areas are paid for by taxes. Additionally, tax dollars go towards many government programs that help to support schools and the poor.