Key Takeaways
- The government provides various services at the federal, state, and local levels. These include infrastructure, transportation, education, health care, and more. These services come at a cost, paid for by taxes.
- Since local, state, and federal governments all provide services, they also all levy their own taxes.
- In the US, individual and corporate income taxes account for the majority of federal government revenue.
- This revenue funds things like national defense, Medicare, and Social Security.
- Property taxes, sales taxes, and income taxes fund state and local governments.
- Every state chooses which taxes it levies and at what rate. Some even choose to forgo popular state taxes, like an income tax or sales tax.
- This revenue funds services such as education and transportation.
- Every country also generates its revenue in different ways.
- For example, the US relies heavily on income taxes, while most other developed countries rely more on consumption taxes.
- Tax rates are not the only thing to know about taxes. Their effectiveness in raising revenue and impact on personal and business decision-making are also dependent on their base.
Transcript
Every time you see a fire truck or school bus drive down the road, or get the mail, that’s thanks to a government service.
How does the government pay for all those services? Taxes.
And in the US, one look at a pay stub shows us that there are different levels and different types of taxes. The taxes that come out of your paycheck are taxes on what you earn, which include income taxes and social insurance taxes.
Together, individual and corporate income taxes make up the largest source of revenue for the US federal government, funding things like national defense, Medicare, and Social Security.
State and local governments also require revenue, which they raise through a combination of income taxes, sales tax, and property taxes. These taxes fund everything from education to transportation and more.
But not every state relies on the same taxes to generate their revenue. Some states forego a sales tax, while others may have no income tax.
Every country raises revenue differently too. For example, income taxes are the main source of revenue in the US, whereas taxes on what you buy generate the majority of revenue in most other developed countries.
Knowing how our taxes are raised is important because some taxes are more effective than others, and different tax sources can affect everything from how much you earn to where you choose to live.
