Purpose of Taxation A Tax is required payment to local, state, or national government. Government uses taxes to: To fund public goods and services—Taxes are the main sources of income for the government. Most of the Federal Government’s revenues come from your taxes. To influence behavior (tobacco)—Taxes on alcohol and cigarettes are to discourage people from using them. To stabilize the economy. –The government uses the raising and lowering of taxes to help stabilize the business cycle. To redistribute income—taxes taken from the wealthy can be used to help the needy.

The growth of federal taxation DateEvent 1789The Constitution gives Congress the power to levy taxes for the first time. The first taxes are tariffs and excise taxes. 1794President George Washington orders troops to put down a rebellion by corn and rye farmers who oppose the whiskey tax because it cuts their profits. 1863To finance the Civil War, the federal government collects income taxes for the first time. 1872Income tax ends 1895An attempt to impose an income tax fails when the Supreme Court rules it unconstitutional. 1913The Sixteenth Amendment to the Constitution allow the government to collect income taxes 1930’sDuring an after the Great Depression, the government increases taxes to pay for social programs.

The taxes people pay Income tax- The SIXTEENTH Amendment to the Constitution authorizes Congress to tax business and personal incomes. Income from jobs and investments you earn are subject to income taxes. The federal income tax is collected by the Internal Revenue Service. These personal income taxes are the main source of income for the federal government. --Some state and local governments also collect income tax.

taxes Social Security Tax—(FICA—Federal Income Contribution Act) Employers and employees pay equal amounts of social security taxes. Self-employed persons pay the entire tax amount. Sales Tax– In most states, including Illinois a consumer pays a sales tax in the value of the goods and services they buy. This tax is the leading source of income for the state government.

Taxes Excise tax—is a tax on manufacture or sale of certain goods and services. These taxes fund federal, state, and local governments, and include taxes on motor vehicles, alcohol, tobacco, telephone, air services and fire arms. Property tax—Property taxes are based on the value of the land and buildings one owns. They are the main source of revenues for local governments.

Taxes Estate and gift taxes. This tax is based on the value of a person’s property after death. Gift taxes may be imposed if a person gives a gift over a certain amount. A law passed in 2001 provides for the gradual phasing out of the federal estate tax. Business or license taxes—people pay licenses fees to own a car, hunt or fish or to operate certain businesses. Customs duties and tariffs—The federal government places taxes on goods brought from other countries.

Principles of tax fairness—Taxes are administered based on several principles in an attempt to ensure equality. Benefit Principle—This principle holds that those who benefit from a public service should pay for it. Ability-to-pay Principle—According to this principle, more taxes should be paid by those who can afford to pay more.

Tax Rate- The tax rate is the percentage that is charges in taxes Flat Tax– takes the same percentage out of everyone’s income. Progressive tax—takes a larger percentage of the income of high-income people than of low income people.(Federal Income Tax) Proportional Tax—takes the same percentage from everyone’s income. Regressive Tax—takes a larger percentage of the income of low- income people than of high-income people.

Federal Government Spending FunctionAmountPercentage Social Security$519 Billion21% Defense$473 Billion19% Medicare$294 Billion12% Medicaid$187 Billion8% Homeland Security$30 Billion1% Net interest and national debt$184 Billion7% Other Payments Total: $785 Billion $2, 472 Billion 32% 100% *Together, national defense and programs that assist individuals claim about ¾ of each federal dollar.

Federal Government income

State and Local Spending 1/3 on education The rest goes to public assistance, transportation, public safety and health care.