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Section 1 What Are Taxes?

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Objectives

After studying this section you will be able to:

1. Understand how the government uses taxes to fund programs.
2. Identify the roots of the concept of taxation in the United States Constitution.
3. Describe types of tax bases and tax structures.
4. List the characteristics of a good tax.
5. Identify who bears the burden of a tax.

Section Focus

Local, state, and national governments generate revenue by charging taxes. The Constitution spells out specific limits on governments' powers to tax. Taxation can take several different forms, and people disagree over which method of taxation is most fair.

Key Terms

• tax
• revenue
• tax base
• individual income tax
• sales tax
• property tax
• corporate income tax
• proportional tax
• progressive tax
• regressive tax
• incidence of a tax

Looking at all of the taxes taken from your paycheck can be discouraging. It can feel like all of that money is being taken from you for someone else's use. Frustration over taxes is, after all, what led American colonists to go to war against Britain and declare independence. How, then, is anything different today?

Although money is taken from your paycheck, it is not done without your consent. As citizens of the United States, we authorize the government, through the Constitution and our elected representatives in Congress, to raise money in the form of taxes. Why?

Funding Government Programs

A tax is a required payment to a local, state, or national government. Taxation is the primary way that the government collects money. Taxes give the government the money it needs to operate.

The income received by a government from taxes and other nontax sources is called revenue. Without revenue from taxes, the government would not be able to provide the goods and services that we not only benefit from, but that we expect the government to provide. For example, we authorize the government to provide national defense, highways, education, and law enforcement. We also ask the government to provide help to people in need.

All of these goods and services cost money—in workers' salaries, in materials, in land and labor. All members of our society share these costs through the payment of taxes.

Taxes and the Constitution

Taxation is a powerful tool. The founders of the United States did not, without careful consideration, give their new government the power to tax. The Constitution they created spells out specific limits on the government's power to tax.

The Power to Tax

The Framers of the Constitution gave each branch of government certain powers and duties. The first power granted to Congress is the power to tax. This is Article 1, Section 8, Clause 1:

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