Taxes and Taxation

Who and what should be taxed?

Summary

Taxes are necessary to fund government operations and services. The three levels of U.S. government — federal, state, and local — levy various types of taxes to supply the revenues they need.

What are taxes and how should they be levied? Taxes are mandatory payments to some form of government. Ideally taxes should be designed with equity and efficiency in mind, though economists differ on how to achieve these goals. The burden, or incidence, of a tax does not always fall on the person taxed. Instead, it may be divided between consumers and producers, based on the forces of supply and demand.

What kinds of taxes will you pay in your lifetime? Taxes are structured in three basic ways-proportional, progressive, or regressive-depending on their tax rates and effects. Among the main types of taxes are income taxes, payroll taxes, property taxes, sales taxes, and excise taxes.

How do U.S. governments spend the revenue they raise? The federal government spends most of its money on entitlements, interest payments, and national defense. State and local governments spend their revenues on a variety of services, mainly in the areas of education, public safety, and social welfare.