Tax is money that people are forced to pay to the government.
In ancient times, people from one city or region would attack people from another place, and make them pay tribute. Tribute meant that the conquered people would pay money (or other things), and the conqueror would stop attacking them. A famous tribute was the Danegeld, when people from Denmark conquered part of England and made the English pay thousands of silver coins. In a tax, the government makes the people of a country, state, or city pay money. This money goes to pay people who work for the government and to pay for things that the government does such as build roads and bridges.
Types of taxes [change]
There are many different kinds of taxes. Some taxes are based on how much money a person earns. The more money is earned, the more a person must pay. This is called an income tax.
There are three different types of income taxes:
- Flat Income Tax: everybody pays the same percentage of their income. Russia has a flat income tax and everybody in Russia has to pay 13% of the income.
- Progressive Income Tax: the more money a person makes, the higher percentage of their income they have to pay. The United States and several European countries have this tax. An example of this tax is if a person who makes $40,000 per year pays 10% of their income and a person who makes $1,000,000 per year pays 40% of their income.
- Regressive Income Tax: the more money a person makes, the lower percentage of their income they have to pay (the opposite of the Progressive Income Tax). This tax is very uncommon.
There are also taxes based on how much a person owns, called property tax. Things like houses have a property tax on them.
In the United States, for example, the national government has an income tax; most states have an income tax or a sales tax, or both; and cities and towns may have a sales tax or a property tax. In some states such as Ohio, the sales tax is different in each county.
In 1776, Adam Smith said there should be four principles about taxes:
- The tax people pay should be related to their capacity, and the amount of money they earn
- It should be clear how much tax a person had to pay
- Paying taxes should be done in a way that that is comfortable to the taxpayer; this both applies to the way in which taxes are paid, and also to the time, when taxes must be paid.
- Collecting taxes should be as cheap as possible to the state
What the government does with money it gets from taxes [change]
The government uses the money collected from taxes to pay for things. For example, people who work for the government must be paid, so some taxes are used to pay these people. Taxes are sometimes also used in ways that help everybody, like to pay for education, health care, and to keep things like roads, bridges, sewers, and certain buildings in good shape.
People who oppose taxes [change]
- Libertarians are against all taxes or against high taxes.
- Anarchists are opposed to all taxes. Anarchists are also opposed to any form of government.
- Congressman Ron Paul is against high taxes.