The nature of taxes

It is sometimes jokingly said that there are only two absolute certainties in life… death and taxes.

Throughout history, every organized society has or had some form of government. The roll of government varies some depending on the nature of the society but, at lease in our own free society, it is to protect individual freedoms and promote the well being of the citizens as a whole.

The main reason for taxes is to generate revenue for the government so they can provide services to the citizens that the citizens would not effectively be able to provide for themselves. Former Justice Oliver Wendell Homes said “Taxes are what we pay for a civilized society.”


Taxes fund programs fund such as the defense for the country, capital facilities such as highways, sewers, and water treatment plants. Services to protect and enhance our communities like police, fire, parks, and libraries. It also provides help for the ill, elderly, and the poor. These are all services that individuals may not be able to purchase themselves like they would purchase food or clothing. But when people live together they are vital for everyone’s health, safety, and happiness.

I think that we can admit that these are important services, but why do we have to pay for them with taxes? Well, otherwise, each individual would have to pay for their own share for the service regardless of their ability to pay. Those unable to pay would not receive the service and having people left out of these services adversely impacts everyone, even those that were able to pay for the services on their own. Even the people able to pay would find themselves suffering because others in their society would be left out resulting in a less healthy and safe environment for all.

Tax systems allow the governments; after they determine how much money they need to provide these services to their citizens, to gather the funds from the citizens based on their ‘ability to pay.’

So why so many different types of taxes?

In America we have a vast number different types of taxes. There are several reasons for this. One is that certain taxes are assessed at certain governmental levels. For example: The federal government collects most of its taxes from income taxes. States manly rely on sales taxes for most things and income taxes for public schools. Counties and cities normally use property taxes to raise their revenues.

A second reason is to discourage an item’s use. The by increasing the cost of an item through added taxes the government hopes to discourage that items use. The taxes on extraction of non-renewable resources, certain types of pollution, sexually explicit materials, and imports are all examples of this. Frequently the revenue generated from these taxes is used in some way to further discourage or mitigate the damage from the use of certain products such as the taxes assessed on alcohol, tobacco being used in health and education programs about alcohol and tobacco.

And lastly, often taxes are assessed directly on the users of a service provided by the government that is considered more of a luxury to fund the use of that particular service. In these cases, rather than tax everyone based on their ability to pay we are taxed in some way on our use of that service itself. A prime example of this would be the excise tax on motor fuels, which go to building and maintaining the highways.

Why are taxes so complicated?

Be thankful that taxes are so complicated. In fact, if you ever hear a politician promising to make tax that you have to pay simpler you should be very concerned. The reason for complexity in taxes is two-fold.

Less important is that the government uses taxes to promote certain socially responsible behaviors, e.g. donating to a charity or saving for your childrens' future college education are both considered important and so there are tax breaks for such behaviors - although it complicates your tax returns.

Even more importantly is that it allows people to be taxed on their true or NET income rather than just their paycheck. Remember with an income tax people pay according to their ability to pay which is not necessarily the same as their GROSS income. For example if Ted is making 250,000 a year and Ron is making 45,000 a year you would think, in a simple system, that Ted should pay more taxes. But what if Ron is single and living rent-free in his parent’s basement while Ted is married with four children, a mortgage, and 200,000 of medical bill’s. A complicated system allows Ted to show that his ability to pay is less than his paycheck itself would indicate.

In conclusion

Be happy to pay your taxes, your taxes make your life a much, much better life. Of course in our society it is your right (and often your responsibility) to complain about paying taxes and take your place in the governmental process to assure your taxes are as low as possible and as well spent as possible to provide you, as a taxpayer, the maximum benefit as possible.