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
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):
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