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Social Studies help for American History, Economics and AP Government. There are class notes, numerous Supreme Court case summaries and information on how to write a research paper inside.


Mark Twain once said that there were only two things in life that were as certain as the dawn, death and taxes. It is true, we as a society have come to accept the inevitability of taxes. Everyone hates them, but we recognize their need.

Taxes are any payment on behalf of the individual to the government. Taxes are used to pay for all government services. Without taxes the government would have no money to operate.

Just about every taxpayer complains about the high rate of taxes, yet if one were asked if they would trade the tax for the removal of service, they would rather pay the tax. In order for taxes to be acceptable, however, they must meet certain criteria. In order for a tax to be successful, it must be equitable, simple, and efficient.

What Makes a "Good Tax"

For most Americans, it is believed that taxes should be impartial and fair. However, there is dispute over the level of equity of a tax. Some believe that a tax is fair only if everyone pays the same amount- a flat tax. Others argue that a tax is only fair if wealthier people lay more than those with lower incomes- progressive tax are are. Many also argue over the equity of tax loopholes seeing that they allow some people to get out of paying certain taxes.

A second standard for taxes is simplicity. Tax laws should be written in an intelligible manner so that both the taxpayer and the tax collector can understand them. Though it is not an easy task, people are more willing to pay their taxes if they understand them.

Efficiency is the final principle of taxation. A tax should be easy to administer and to gain money from. The income tax fits into this category. An employer withholds a portion of each employee's pay and then sends a single check to the government on a regular basis. At the end of the year the employer notifies each employee of the amount of tax withheld. Other taxes are less efficient. Those collected in toll booths are considered so because the state invests millions of dollars into reinforcing booths, but the cost to commuters is the damage to their automobile from having to slow down and use the booths. Efficiency also means that the tax should raise enough revenue to be worthwhile. If it doesn't, or it hurts the economy, it has little value.

Principles of Taxation

The benefit principle of taxation is based on two ideas. The first and foremost is that those who benefit from services should be the ones who pay for them. Secondly, people should pay taxes in proportion to the amount of services or benefits they receive. But there are two limitations of this type of taxation. First, many government services provide the greatest benefit to these who can least afford to pay for them (i.e. welfare). The second limitation is that the benefits often are hard to measure.

The second principle of taxation is the ability-to-pay, which is based on the idea that people should be taxes according to their ability to pay, regardless of the benefits they receive. This type of tax recognizes that societies are not always able to measure the benefits derived from government spending. It also assumes that persons with higher incomes suffer less discomfort paying taxes than a person just getting by on their income would.

The Three Types of Taxes

The three types of taxes are the proportional tax, the progressive tax, and the regressive tax.

A proportional tax imposes the same percentage of taxation on everyone, regardless of income. If the percentage tax rate is constant, the average tax rate is constant, regardless of income. This means that if a person's income goes up, the percentage of total income paid in taxes doesn't change.

The second tax, the progressive tax, imposes a higher percentage rate of taxation on those with higher incomes. Progressive taxes use a marginal tax rate that increases as the amount of taxable income increases. Therefore, the percentage of income paid in taxes increases as income goes up.

The final tax is the regressive tax, which imposes a higher percentage rate of taxation on low incomes than on high incomes. For example, if the state sales tax were 5%, the person with the lower income would pay a greater percentage of their total income in sales tax.

Tax Revenue

Where income tax is the largest form of income for the federal government, The sales tax in the largest source of revenue for states. Rates for the sales tax vary for each state. By definition, a sales tax is a general tax levied on consumer purchases of nearly all products. It is added to the final price the consumer pays, and merchants collect the sales tax at the time of sale. The taxes are then given to the proper state government agency on a weekly or monthly basis. The sales tax is an effective way for states and cities to raise revenue. The tax is difficult to avoid and because of that it raises huge sums of money. The sales tax, however, is a regressive tax because it is the same percentage rate for all people, meaning the percentage of income paid in sales tax goes up as the income goes down. The second largest source of revenues for state governments are funds that they receive from the federal government. These funds help finance highways, health, hospitals, education, and welfare. The third largest source of state revenue comes from the individual income tax. Generally, individual income tax revenues are about five times as large as the income tax collected from corporations. Lastly, many states impose taxes, fees, or other assessments on their employees to cover the cost of state retirement funds and pension plans.

A majority of the revenues for local governments come from intergovernmental transfers from state governments. They are generally for the purpose of education or welfare. A smaller amount comes from the federal government, mostly for urban renewal. The second largest source of revenue for local governments comes from the property tax- a tax on real property and tangible and intangible personal property. Real property includes real estate, buildings, and anything permanently attached such as central heating. Tangible personal property includes all tangible items of wealth not permanently attached to land or buildings. Intangible personal property is property with an invisible value and is represented by paper documents such as stocks, bonds, or checks. However, out of all of these property taxes, the real estate tax raises the most revenue. Taxes on personal property are rarely collected because of the problem of valuation. In addition, it would be neither efficient nor effective to have a tax assessor view everyone's personal property, and come up with values for all of them. The third largest source of revenue for local governments is utility and state-owned liquor store income. Finally many towns and cities impose their own sales taxes in order to increase revenue. Merchants collect these taxes right along with the state sales tax, and the point of the sale.

Many of the taxes paid to the federal, state, and local governments are deducted from one's paycheck. A worker will have taxes taken out for the federal, state, and city governments with the amount taken out decreasing in this order. FICA is also taken out. Sometimes if a worker has insurance payments or retirement contributions, purchases savings bonds, or puts money into a credit union, even more deductions will appear on the paycheck, though they are not taxes. The only major taxes that don't appear on the paycheck are state sales taxes, local property taxes, and federal excise taxes.

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