What are Taxes, and Why Do We Need Them?


Photo by DonkeyHotey

Last week, many of us paid taxes, or filed a tax return for taxes overpaid throughout the year. This time of year often prompts many to wonder why we need taxes, and figure out what they are used for.

What are Taxes?
Simply put, taxes represent a contribution — of money — that we make to the government. This contribution is compulsory, levied by law. This means that a portion of your income is given to the government. Additionally, taxes are also contributions that are paid as an additional cost to some goods and services, such as the gasoline taxes we pay, or the sales tax that a state might charge. In some cases, taxes are levied on the value of property you own, such as real estate taxes, or a premium added to your vehicle registration based on the value of your car.

In the U.S., the Constitution, under Article I, grants Congress the power to collect taxes and duties. The 16th Amendment to the Constitution deals specifically with the clarification of the income tax. States can also collect their own taxes.

Why Do We Need Taxes?
Many of us take for granted certain services that we enjoy, such as education for our children, police services, mail services and a strong military. We also take for granted that roads will be paved and bridges built. However, these things don’t just come about. Someone needs to pay for them — and we do, through taxes.

Taxes are used for a variety of purposes. Article I, Section 8, of the Constitution begins:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States;

There then follows a list of examples of things that Congress can use taxes for. The list, of course, is incomplete since listing everything is impossible. But the founders make it clear that if Congress thinks it promotes the general welfare of the country, taxes can be collected to pay for it. (You can view a “taxpayer receipt” from the White House.)

Of course, we are endlessly debating the use of tax dollars, since not everyone agrees with how they are spent. Most people agree that some money needs to be spent on the military, and some needs to be spent on keeping our infrastructure in good repair. Many even agree that money should be spent on providing children with a basic education. However, issues of health care spending, spending on the arts, and spending on science start to raise blood pressures — especially if spending is aimed at small projects in specific jurisdictions (known as pork barrel spending).

What do you think about taxes? What do you think they should be used for?