Why do we have taxes?

Our Government, including the federal, state and local authorities, rely on taxes to provide for the welfare of all Americans. Our taxes help pay for services such as the military, social security, roads, libraries, airports, food and product safety and…education. There are many types of taxes; including tax on our income from wages, interest and dividends. Even corporations pay income tax. There are extra taxes on luxury goods, tobacco products, alcohol, fuel and imported goods. We also pay taxes on our earnings to the State and local governments, property taxes our homes and vehicles and sales taxes on many of the items we buy every day.

In terms of history, the Federal Government of the United States began taxing individual income in the early 1860s. In 1913, the 16th Amendment to the U.S. Constitution made income taxes a permanent part of how the Federal Government raises funds to meet its obligations. Of course, what gets taxed and for what purpose are always points of heated debate in our community. This is in some way why taxes are so complicated.

Why are Taxes so Complicated?

In addition to providing sources of funds for the various Governments, the tax laws are also designed to influence and support various types of investments, housing, family structures, health care and many other social and economic aspects of our society. For example, while rent you pay does not save you taxes (as a “deduction” from taxable income), interest expense on a mortgage on your home does. This seemingly “unfair” treatment is designed to help make home ownership more affordable and to encourage Americans to invest in their communities.

Our income tax structure is known as progressive: the more money you make, the higher tax percentage you’ll pay. The concept behind a progressive tax structure is that those who make more money have a greater ability to pay higher taxes. While the Tax Code is very complex, arming yourself with the right information can allow you to efficiently manage your tax liabilities and file your tax returns on time and correctly.

Need help? At Winthrop University, our Accounting and Finance honor society, Beta Alpha Psi, also offers free tax assistance for our students through the VITA program.