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Taxes Overview

In a Nutshell

Just about everybody hates taxes but all governments collect them; taxes provide the revenue needed to fund basic government operations and to advance political leaders' more ambitious social, economic and military objectives. The types of taxes governments impose, however, vary widely. In the United States, the federal and state governments collect a variety of income, property, sales, excise, and trade taxes. 

But who should pay?  And how much?  What's fair?  What's unfair?  Those decisions are influenced by different tax philosophies. Some are based on the “ability to pay principle”; others are rooted in the “benefits received principle.” But regardless of type, taxes are usually judged on the basis of their effectiveness, efficiency, and fairness.

Why Should I Care?

Down with taxes! That’s part of our national heritage, of course. It’s one reason why we launched a Revolutionary War and declared independence from the world’s most powerful and prosperous empire back in 1776. We may have calmed down a little bit on the topic over the past couple hundred years—we generally no longer chase tax collectors through the streets and threaten to burn down their houses like we did before the American Revolution. But few kids today grow up dreaming of becoming tax collectors when they grow up. And letting the maître d’ know that you work for the Internal Revenue Service does not get you a table by the window at that hot new restaurant.

But taxes, unpopular as they may be, are necessary. We may disagree about whom, what, and how much to tax, but we all know that governments must have some sort of income if they are to operate. Therefore exercising our patriotic obligation to complain about taxes can get a little complicated. If we want to be informed patriots, if we want to ensure that our anti-tax venom is spewed in the right direction, we need to know a few key things about what taxes really are and how they really work.

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