Why Does the Federal Government Collect Taxes?

by Tom Lutzenberger, studioD

Mark Twain once said the two things guaranteed in life are death and taxes. And we are reminded of the presence of taxes every April 15 when our income taxes have to be filed and, in some cases, paid to the federal government. However, not everyone understands beyond having to pay them exactly what taxes are for. A better comprehension also helps understand how government works and how to find out where tax dollars go.

Early History

The U.S. government first started collecting taxes as early as its first days after the freedom gained in the Revolutionary War. It became apparent very quickly that the new government would not be able to function if it did not have money to pay for an army and the various basic services expected from it. Taxes were not a new idea with the birth of the U.S. government; in fact, they were the cause of it. Extraordinary and burdensome taxes levied by the British government on the U.S. colonies was one of the chief reasons the U.S. came into being with a war. However, despite not wanting British taxes, the new 13 states still had to pay for their own government, which caused early angst as well. The whiskey tax implemented by President George Washington was the first of many American complaints about taxes. Washington had to use the army to enforce the tax collection on liquor to help raise needed funds for government operations.

Today's Reasons in General

Unlike a business, most of government involves services for the country and for citizens that do not generate a profit much less a revenue. This means that these services are provided without an individual service charge. Common examples are public schools, prisons, support of a national military, public health protection, maintenance of national forests, and much more. Since the government does not collect much for fees, sales, or permit revenue, it needs to collect funds in some other way. It does this by requiring every working citizen to pay income taxes on money earned.

Ongoing Operations And Increases

In the federal government today there is a basic level of service expected by the public in a variety of functions the government provides. This is considered an ongoing cost that taxes pay for. Other examples can include social services, such as welfare support, child support funding, parks, and operation of federal prisons. Then there are issues that cause temporary or permanent increases in costs. These issues drive the need for more tax money or more government borrowing to pay for the costs. A significant activity is when the U.S. government decides to initiate a military action or go to war with another country. An extended military activity involves a significant outlay of labor, equipment and consumable resources that cost money. For example, one year of presence in Iraq and Afghanistan with the U.S. military resulted in an increase of over $80 billion in costs. This sort of spending contributes to increased demand on tax money and borrowing to pay for it.

How Government Reduces Tax Spending

Frequently the press will talk about how government plans to cut spending therefore the demand for taxes. The actual process involves proposals, hearings, consensus, denials, new proposals, revisions, legislation, vetoes and then a law authorizing the reduction. The process happens program by program, department by department. There is rarely ever an across-the-board arbitrary reduction on all government at once. Due to politics, some programs are targeted and their spending reduced, while others are not touched. The haves and the have-nots change from year to year, depending on which political group is in control at the time.

Where to Find Tax Collection/Spending Detail

Two specific areas identify what tax revenues are collected and how they are spent. Understanding these two sources can open up an abundance of information that the average person just using the television as an information source thinks is government double-speak or legalese. The first source is the president's administration budget. It is prepared annually by the Office of Management and Budgets, and it details the president's proposal for funding and spending in each department and program. The second source is the federal budget congressional package passed through both houses of Congress. As the Senate and the House of Representatives review and change the president's budget package to their liking, revisions are made that can take away spending or add it significantly. The language used in the Congressional legislation can seem very legal in form, but getting used to it and reading it's real meaning just takes practice. Soon enough anyone can understand where the money is really going in appropriations after understanding how the system works.

About the Author

Since 2009 Tom Lutzenberger has written for various websites, covering topics ranging from finance to automotive history. Lutzenberger works in public finance and policy and consults on a variety of analytical services. His education includes a Bachelor of Arts in English and political science from Saint Mary's College and a Master of Business Administration in finance and marketing from California State University, Sacramento.

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