" " Why Do We Pay Taxes? Where Does Our Tax Money Go? " " " "

Why Do We Pay Taxes?

Why do we pay taxes? An emotive question indeed! Few among us would willingly volunteer to pay tax of any kind, were this a recently introduced move to collect money from hard working citizens. In reality, taxes have been in effect since the dawn of time, and it is a given that they will be around as long as we live. Grudge factor for sure, but tax revenues pay for the services provided by the different levels of government, namely, federal, state and local authorities.

There are many forms of tax collection in place, sales tax being about the most common. For purposes of this article, we look at the reasons why we are required to meet our obligations in terms of federal, state and municipal taxation. Essentially, revenue raised from federal taxes totals about the same amount as state and municipal taxes combined.

Different Kinds of Taxes


Federal government collected somewhere in the region of $3.5 trillion during the 2016 financial year. Almost half of this figure derives from collecting personal income tax, with a further 31 percent raised from payroll taxes. Corporate tax amounted to around 11 percent of federal tax collections, with the balance arriving in the form of excise taxes, estate duties, tariffs and taxes from the Federal Reserve holdings.


According to the latest stats available, 2013 financial year, the states collected nearly $1.7 trillion tax revenue. Around 31 percent came in the form of handouts from federal government, most of which went towards the Medicaid health care program for low-income families.

Sales taxes accounted for a significant portion of tax revenue, in fact almost 25 percent. Other important streams of state taxes include Income taxes, state license fees, severance taxes, and estate taxes. Corporate income taxes accounted for less than 3 percent of tax revenue. Public hospitals, state universities, and toll roads were the biggest for budget handouts.


In 2013, local authorities collected almost $1.5 trillion in taxes, with around 32 percent of revenue received from state government. This category includes cities, school districts, and counties. Other revenue streams include property taxes as well as fees for water sewage and parking. Sales taxes provide less than 3 percent towards local tax coffers.

How Does the Government Spend Our Taxes?

At a federal level, the largest single expense goes towards senior citizens in terms of social security payments. The amount is more than $900 billion, topped up from payroll taxes and other investments through the Social Security Trust Fund. These taxes form a wise saving investment for the future.

State expenditure sees $500 billion in favor of social services, including Medicaid, welfare, and public housing.

Local government budgets mainly target education and libraries, with water and sewer services following.

Efficient and Fair Tax Collection is Important for Planning

Each country has its own tax collection laws, and it is the duty of every citizen to abide by the rules, usually set by elected officials. In the US, sophisticated methods are in use to track down tax dodgers and evaders.

Many taxpayers have found clever loopholes in the rules pertaining to tax, but amendments to tax laws are swift and effective. It is better for each of us to face reality and pay our dues, as we hope for a more benevolent program from those in high office.

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