Federal income tax on salaries, federal income tax on social securities, state taxes, local taxes, custom duties, and many other taxes are the substantial shares we give to the government and private people. While striving to achieve the American Dream of Housing, the Americans also pay taxes on small businesses, charities, publications, and many other things. While taxes munch a huge portion of your salaries, it is quite understandable to ask someone why do we pay taxes.
The taxpayers’ complains ring up as the month of April reaches. It is because most of the people start preparing their tax files in mid March to early April. The public anger also fires up during this season. The complaints have ringed out so high every season that people have started celebrating ‘Tax Freedom Day’. It is the day when the nation theoretically earns taxable money. In other words, a person pays at least one full day’s income as taxes, so it is legitimate to ask why do we pay taxes.
A Brief Concept of Taxes
Before answering the question that why do we pay taxes, it is more important to understand the concept of taxes.
Tax is often described as Federal Income Tax by most of the people but we should remember that there are many other types of taxes every citizen pays each year. Tax can be simply understood as a contribution by individual citizens for citizens’ services by the state. The collected taxes are divided in different categories including national categories like defense, national air and rail services, hospitalization, old homes, and others.
The taxes are also assigned to individual states according to their share of total contribution. These state taxes are used for constructing roads, establishing public sector schools, law enforcement, implementing reforms for eradicating unemployment and illiteracy, and many such public services. In other words, tax is a contribution individuals invest for their own services.
Before 1913, there was no concept of institutionalized tax system in the US and people didn’t ask that why do we pay taxes. In 1913, the 16th amendment in the United States Constitution was passed by mutual consent of parliament. Tax collection was not an institutionalized system by then. Meanwhile, the United States was also involved fighting the World Wars and it was tough for the government to focus on establishing a proper institution.
After the World War 2, the government of United States wanted to establish a proper system that ensures maximum tax collection. The system was designed to be controlled by trusted authorities and even those authorities were accountable to report to the government. This is how the Internal Revenue Services was established on July 9, 1953. It is the Department of the Treasury not only responsible for collecting taxes but also responsible for redefining the tax laws.
For Customized and Accurate Information
If you want more customized information about where your taxes have been invested by the state or government then you can receive information from Federal Taxpayer Receipt. It is a website from where you can receive information about your tax investments simply by filling out basic taxpayer’s form.
Internal Revenue Services is responsible for collecting taxes from all over the US. IRS has also started online tax submission form. It is a simple process, in which you get Form 1040 if you don’t owe any taxes. Then you need to hire a CPA if you feel that you cannot calculate your taxes on your own.
For first time taxpayers, it is highly recommended to hire CPA. You can also manually calculate your taxes or use a software application for doing this. After submitting your tax files to the IRS, you need to wait for at least 14 days (if you submitted tax files online) and at least 3 to 4 weeks (if you sent tax files by mail).
The IRS receives your files and processes them. The IRS already has your employment or business records as well as your owed taxes. If the IRS finds any error in the tax files, the taxpayer is sent a notice of error along with the details about penalties. Remember that heavy penalties may charged against even small errors in the files. The IRS also provides a solution to this problem. If you found the error in files after submitting your tax files, you can resubmit your error correction files by using another form. We will not use Form 1040 for submitting error correction files.
Finally, after careful calculations, the IRS sends you tax returns via mail. Most often, the result of tax files is received within 4 weeks and the tax returns are received within 15 days after receiving the results. The IRS has also established center for helping you understand why do we pay taxes.
Now we will understand the concept of institutionalized sending to answer the question that why do we pay taxes.
In many countries, the government works in different stages. In United States too, the government officials work at national, state and local levels. From Union Councils to post offices, legislatures, executives and judges, there are a number of posts operating for national services in the US. These government servants also receive benefits like medicare and old age benefits from the government. The salaries and all benefits of these workers are paid from taxes.
Now you would wonder that why you need to pay for someone’s salaries or why do we pay taxes. As a fact, the salaries of most of the government posts are far lesser than the salaries paid by the private companies.
The corporations directly pay income tax to the government from your salaries. It is a small percentage withheld from your salary. If you are a student and not a full-time earning person then you don’t need to worry about the income tax. However, you definitely need to worry about the sales tax.
The store owners purchase products from the manufacturers deducting the sales tax. You pay the full amount including sales tax and manufacturer’s costs. In other words, sales tax is the profit of the store owner. Some stores also charge more or less than the given costs using different marketing strategies.
Real estate is one of the fastest growing industries in the US. If you are also planning to invest in this industry then make sure to learn about property taxes. Property tax is not fixed. It depends on the cost and location of the property. You need to pay the property taxes along with the mortgage and interests in order to own it for long. Otherwise, the IRS is authorized to claim the property. There are several legal ways that you can use to delay paying the property taxes due to lack of financial resources or medical reasons.
Coming back to institutionalized spending and the question that why do we pay taxes, the taxes are divided into two primary categories including the following. These categories will give you a clearer idea about why do we pay taxes.
An optional part of fiscal policy in most countries, discretionary spending is an essential ingredient of American fiscal policy. In simple terms, discretionary spending refers to the use of taxes for facilitating and securing the citizens. In United States, the Congress is authorized to determine the amount of spending required in this category.
We need to make it clear here that discretionary spending is not the total budget made by the Congress. It is just a portion of the budget. The Congress can increase or decrease the amount of discretionary spending, which may affect other ingredients of the budget created by the Congress.
There are a number of categories included in this category. These include housing, emergency disaster relief, border protection and patrolling, defense, space exploration, foreign aid, highway construction, FBI, the Coast Guard, and many others.
The total budget is distributed into three parts. Two parts are used for mandatory spending and one part is used for discretionary spending. Now we will have a look at mandatory spending to fully understand the concept of why do we pay taxes.
The government jointly defines the rules of payment and the rules of eligibility. These rules are used to entitle a number of programs that fall in the category of mandatory spending. Currently, the Congress defines the programs entitled to fall in this category. Later on, the other members of the government define the number of people the entitled program will serve in a given tenure.
There are many important and large programs that are served by the budget of mandatory spending. These include large scale security and military services, social security services, salaries and expenses of tax collection, the food stamps program, the population control programs, the migrant facilitation programs, Medicare, old age benefits, and many other programs. Two-third of the total budget is used as mandatory spending.
Why Paying Taxes is Really That Important?
Paying your taxes is a civil duty. It is your share or investment in the government collection to receive different kinds of services explained later in the article. It is also required by the law to pay your taxes. The Internal Revenue Services is authorized to charge penalties or even send the non-taxpayer to jail after sending at least three notices.
- It is the money you pay for running the government. The government requires taxes to give you your due rights promised by the United States Constitution. As explained earlier, the taxes are used to remunerate the government representatives.
- The governments abolish due to shortage of taxes and may need loans and funds from other countries or from the IMF.
- Taxes are also important for free education and medicare of the less privileged.
- Taxes are important for your national and social securities.
- Paying taxes is a social responsibility. If the system continues the right way, all the less privileged will be educated and employed and the American Dream would come true.
- Public utilities is one of the primary answers to the question that why do we pay taxes. It will be explained in detail later in the article.
Services You Receive By Paying Taxes
According to the new list issued by the Government of the United States, many new facilitation programs have been included in different categories of tax spending. United States is a big country and an attractive destination for immigrants as well. As a social responsibility, we also provide homage and refuge to immigrants from the third world countries. Therefore, the government has introduced numerous programs not only to overcome the housing shortage but also to keep running the country in its best forms. The programs also include rehabilitation, education, medicare, and employment programs not only for the nationals but also for the immigrants.
Primarily, the US tax spending system is divided into the following categories.
Each year, millions of American people apply for admission in the US military. The US military is not only serving to defend the nation but it has also taken the social responsibility of eradicating terrorism from the world. This is why, our military not only work in collaboration with established economies but our soldiers also fight in tough areas and unsecure countries.
As an estimate, almost 43% of the tax budget is used for fulfilling the military services. these include border protection, fuel and ammunition expenses, salaries and benefits to veterans, war expenses, and other military expenses.
Answering why do we pay taxes, it is quite understandable that a huge portion of your paid taxes is used for protecting the citizens of America.
America is one of the first countries to introduce healthcare services for her citizens. Apart from healthcare services, the government also spends money on research institutions working days and nights to find cure of fatal diseases. Almost 22.5% of your federal income tax is used for fulfilling the healthcare services. Currently, Medicare and Medicaid are two primary programs entitled under mandatory spending for providing health services to Americans.
The healthcare programs also include food safety programs and the salaries of FDA. You may be wondering that why do we pay taxes for healthcare when some portion is already deducted from your salaries. Here is the explanation. The amount deducted from your salary is solely used for your personal and your family’s medical services whereas the amount consumed from the taxes is used for national healthcare services in order to provide equal healthcare services to all American citizens. These also include the homeless people and less privileged people. Again, you are doing a social service by paying taxes and abiding by the law.
The American government takes out debt at times to serve the needs of American citizens. Fulfilling the responsibility of paying back debt, the government takes out almost 10% of mandatory spending for returning the national debt and reducing the interest.
Social and Income Securities
You might be already aware of the concept of social or income securities. In simpler terms, income and social securities refer to national financial assistance plans for the American citizens. These include retirement plans, housing plans, old age nutrition and nursing plans, securities to the family after death of the head, and many such programs.
For example, if you already have stored your savings in IRA accounts and you want to invest after retirement but the savings are insufficient then you can take help from any of the business assistance programs designed by the US government. It is like a loan which you pay off after earning from your business. Almost 17% of the budget is used for social and income securities.
Tax relief, childcare programs, and tax returns are also included in social and income securities. For further understanding that why do we pay taxes, we will have a look at the following categories and sub-categories as well.
The crime rate is increasing in many American states. The phenomenon has made people move from unsecure states to securer ones, creating an imbalance in housing, education, and employment. The Government of United States is striving hard to establish peace inside and outside the nation. This is why, the government spends almost 10% of its budget on law enforcement including on police, law establishment, law committees, purchasing ammunition and fuel, courts, salaries of judges, and other law enforcement services, and exactly why we pay taxes.
Apart from free education and awareness programs all over the US, the government of United States has also defined sub-categories in the education category for budget spending. These include science, space and technology, free workshops and education programs, international scholarship programs for students from third world countries, research and studies about energy, environment and natural resources, and establishment of research institutions all over the country. In space and technology sub-category, around 50% of the budget of this category is assigned to NASA. Now you would have a better idea about why do we pay taxes.
This category includes programs for constructing highways, roads, amusement parks, theme parks, houses, and important national buildings. Construction budget also includes budget for restoring and maintaining the heritage and tourist sites. After housing bubble, the government has increased construction budget individually for different states.
Apart from these, there are many sub-categories and main categories included in the budget. The President of America is responsible for announcing the major categories and new programs in the budget after every fiscal year.
It is completely understandable to ask about the money you earn that where does it go. Now if someone ask you why do we pay taxes, you can safely tell them that we pay taxes to keep ourselves, our families, our properties, our earnings, and our country safe, more powerful, and prospering.