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Financial Literacy

Financial Literacy

Why Tax?

Taxes exist to pay government bills – they have been around as long as there has been government. Need a pyramid? Tax the people (in one way or another…) Need a war? Tax the tea. Need a manned mission to Mars? Yeah, sounds awesome! Well, then school-teacher-who-makes-$65,000-a-year-and-pays-$12,000-in-taxes, we’re gonna have to increase your taxes $6,000 to pay for it. Are you ready for Mars TV?

When the U.S. of A. IPO’d around 1776, we needed money to fund things like guns and cops and the space for a big bell near Philadelphia. (You should have seen the cow.) That was obvious.

Less obvious is the form in which we collected those monies. In the days of yore (pre-1900) most taxes were collected on an ad hoc basis. That is, we added hoc to the cost of a good or service as a tax. If you paid 10 cents for a bushel of eggs, a penny tax was added that went right into Uncle Sam’s loose pockets on those candy-striper pants. It was a good system for a while but it was “regressive.”

The belief was that since rich people benefited more from an organized government versus chaos, rich people “should” be taxed more. If only left-wingers had a time machine.

In addition, a world without organized government under the Articles of Confederation was a world without an ability to raise an army, manage interstate commerce, or pay its debts. It couldn’t even put down your bread-and-butter rebellion.

So the “tariff system” faded a bit and an incremental tax system evolved which attempted to be more “progressive.” The new tax system was derived largely from the taxation of individual incomes, which began with the passage of the 16th amendment in 1913.

You can imagine that while owing taxes is hard enough, collecting them is even harder. So Uncle Shmuel (Sam to most of you) created the Internal Revenue Service (IRS) to generate revenues for the government. The result: the IRS takes a bite out of just about everything you touch that isn’t cemented to your body (note: if you have things cemented to your body, please see a doctor):

• Your home
• Your goldfish (even though they are edible and food isn’t taxed, they are sold as pets so they are taxed)
• Your gasoline
• Your paycheck
• Your jewelry
• Your toothpaste
• Your dinner out
• Your dinner in
• Your death

As long as there are governments, the 11th Commandment will be respected: Thou Shalt Be Taxed.

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