Why Is It Necessary for the Government to Impose Taxes

It is important to note that Congress has given the Internal Revenue Service (IRS) responsibility for administering tax laws, known as the Internal Revenue Code (the Code). Congress enacts these tax laws and the IRS enforces them. Individual states also have the power to levy taxes, as do small government agencies such as cities, counties, and municipalities. Some services, called “natural monopolies”, are provided more efficiently when there is competition. The best-known examples are utilities that provide water, natural gas, and electricity for private and business purposes. Since there is no competition, government agencies carefully regulate the services, prices, and profits of utilities. Our children receive their education mainly at the expense of the state. City and county governments have primary responsibility for primary and secondary education. Most states support colleges and universities. The Federal Government supports education by providing subsidies to the Länder for primary, secondary and vocational education and training. Federal grants used to conduct research are an important source of funding for colleges and universities.

To promote economic growth and development, governments need sustainable sources of financing for social programs and public investment. Programs that provide health, education, infrastructure and other services are important to achieving the common goal of a prosperous, functional and orderly society. And they are demanding that governments increase their revenues. Taxation does not only pay for public goods and services; It is also a key element of the social contract between citizens and the economy. How taxes are collected and spent can determine the legitimacy of a government. Government accountability supports the effective management of tax revenues and, more generally, good management of public finances.1 Property taxes account for more than three-quarters of the revenue generated by wealth taxes. Other taxes levied on wealth include inheritance, inheritance and gift taxes. The purpose of excise duty is to pass on the burden of paying the tax to the consumer. A good example of this use of excise duty is the excise duty on fuels.

Governments use the revenue from this tax to build and maintain highways, bridges and public transit systems. Only people who buy gasoline — who use the highways — pay the tax. Payroll taxes are an important source of revenue for the federal government. Employers are responsible for paying these taxes, which include social security and unemployment benefits. Employees also contribute to the Social Security program by withholding money from their paychecks. Some state governments also use payroll taxes to pay for state unemployment benefit programs. Property taxes are the main source of revenue for local governments. Most places tax private homes, land, and commercial real estate based on the value of the property. Usually, taxes are paid monthly with the mortgage payment. Whoever holds the mortgage, like a bank, keeps the money in an “escrow account.” Payments are then made for the owner. Just like state taxes, local taxes can vary.

They can include taxes on property, sales, income, as well as various nuggets such as water fees and parking meters. Local governments often derive a significant portion of their revenue from sources such as federal and state subsidies and fees for commercial-type businesses that provide services such as utilities, hospitals and public transit, MacDonald says. In the United States, Congress has the power to collect taxes, as provided in Article 1, Section 8, Clause 1 of the United States Constitution: “Congress has the power to collect and collect taxes, duties, duties, and excise duties in order to pay the debt and to ensure the common defense and general welfare of the United States. This power was affirmed in the Sixteenth Amendment to the Constitution: “Congress has the power to levy and collect income taxes from any source, without division among the various states and independently of a census or enumeration. » Revenues and Expenses (IRS Publication 2105; Rev. 3-2011): Tax revenues are used by the government to support services and activities for all residents. Under the Sixteenth Amendment, Congress has the power to collect income taxes. Tax breaks improve competitiveness. Overly complicated tax systems are associated with high levels of tax evasion, large informal sectors, more corruption and less investment. Modern tax systems should aim to streamline tax collection while minimizing the tax compliance burden on taxpayers. Overall, the OECD`s high-income economies are the most efficient in processing VAT refunds, with an average of 14.3 weeks to process the refund (including some savings where an audit is likely to be carried out).

The economies of Europe and Central Asia are also doing well with an average processing time of 23.1 weeks. These savings offer repayments in a way that does not expose businesses to unnecessary administrative costs and negative cash flow effects. Source: USASpending.gov “We won`t really appreciate some of the things our taxes pay until our hair turns gray,” Jones says. “Look at the bright side, some of the taxes you pay are paid into `your Social Security account`, which you can withdraw at retirement age.” VAT is a form of regressive taxation; Liabilities are based on the percentage of income consumed, which is higher for low-income people. As a result, people with relatively lower incomes pay a higher proportion of income in the form of sales tax, which defines the regressive nature of the tax. While this is a general source of revenue, sales taxes are also used to change behaviors. For example, taxes on cigarettes are designed to discourage purchase because of the inherent health effects of smoking. The Harberger triangle, generally attributed to Arnold Harberger, refers to the windfall effect (measured by a graph of supply and demand) associated with government intervention in a perfect market. This can be done through lower price limits, caps, taxes, duties or quotas.

In the case of a tax on the supplier of a good, the supply curve moves inwards in proportion to the tax and leads to a level of compensation that is not in line with the market. As a result, the price of goods increases and the quantity available decreases. Some of the money is also used to fund projects such as pensions, unemployment benefits, childcare, etc. Without taxes, it would be impossible for governments to raise funds to finance such projects. In Brazil, the government created Simples Nacional, a tax system designed to simplify tax collection for micro and small businesses. The program reduced total tax costs by 8% and contributed to an 11.6% increase in the business licensing rate, a 6.3% increase in the registration of micro-enterprises and a 7.2% increase in the number of enterprises registered with the tax administration. Revenues increased by 7.4% due to increased tax payments and social security contributions. Simples Nacional has also been credited with increasing incomes, profits, paid employment and fixed capital of formal sector enterprises.9 In economics, a windfall effect (also known as overburdenment or allocation inefficiency) is a loss of economic efficiency that can occur when the equilibrium of a good or service is not optimal pareto (allocation of resources where it is impossible to make an individual better without aggravating the minus one individual).