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Home Finance Taxes Federal vs. State Taxes

Federal vs. State Taxes

Both the state and the federal government are taxing you, so…double the fun!

But what does the state do with your cash? And why are two governments suddenly interested in how much you earn?

If you passed 8th grade history, you know that the United States is a federalist system, which means that the federal government has some powers and the states have other, different powers.

That means that the federal government taxes some stuff, and individual states get to decide what they want to tax on top of it (and how they want to spend that money)

  • The federal government provides money for social programs and for federal spending (like the military).
  • States handle stuff like education, roads, and hospitals.

Does your state want to tax everyone who drives a red car? Or everyone who eats rocky road ice cream? They can do that. Do they want to blow all the state tax money on a big party? They can do that, too, although they're going to have some explaining to do when someone trips over a balloon and can't get to a hospital because all the tax money went somewhere else.

Don't like how your taxes are being used? That's why it's decided upon by elected officials. The people who have a fistful of your dollars need your vote to continue spending your cash.

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