Taxes - Head Matters

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1. Taxes and Tax-Supported Services


The federal government relies mainly on income taxes, or taxes paid by persons or corporations because they earned money, for its revenue.  The federal government is responsible for providing military defense, federal judicial systems and prisons, national parks, national highway development and maintenance, airports, postal services, health care support, environmental protection, and other types of support.  An income tax is a progressive tax; that is, people with higher incomes pay a higher percentage of tax on the income they make.

State governments also rely mainly on individual and corporate income taxes and provide such services as state-supported public colleges, health care, K-12 education, state highways, corrections, human services, and other types of support.  States that do not collect personal income taxes most often collect sales taxes and property taxes to provide services.  In 2008, more than 40 states collected income taxes.  The federal government also provides some grants, again funded by taxes, to states to assist with such services as Medicaid and highways.

Local governments rely mainly on taxes such as sales, alcohol, real estate transfer, franchise on utilities, and property levied on homes and business buildings.  These taxes support public schools, enforcement of code provisions, the court system, sheriff and police offices and other services provided locally.

A sales tax is a regressive tax; that is, all people, no matter how much money they earn, pay the same tax.  It is called regressive because people with small incomes pay a larger percentage of their total money into the sales tax system than do people with higher incomes. 

There are many different taxes charged to individuals or businesses for many different reasons.  To give you an idea of just how many taxes and fees a state might levy or charge, here is a list from the Minnesota Department of Revenue for that state (http://www.taxes.state.mn.us/taxes/all_tax_types.shtml):

 
 Air emissions fee  Fur clothing tax Property tax refund
 Alcoholic beverage tax Hazardous waste fee REA membership tax
 Cigarette and tobacco tax  Individual income tax Revenue recapture program
 Contamination tax  Insurance taxes S corporation tax
 Controlled substance tax  Lawful gambling tax Sales and use tax
 Corporation franchise tax  Metropolitan landfill fee Severed mineral interest
Corporation franchise tax
for  nonprofit organizations (UBIT)
 Mineral taxes Solid waste management tax
County conservation fee  MinnesotaCare Sports bookmaking tax
Deed tax Mortgage registry tax Water quality fee
Dry cleaner fees Partnership Wind energy production tax
E-waste registration fee Petroleum taxes Withholding tax
Estate and trust tax Property tax Use tax for individuals



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