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Taxes (in all their various forms) are the revenue stream that a government needs to provide the services that its citizenry demand of it. If you want the government to perform some action, well, it needs some money to pay for it. Taxes are how we do that.

In general, government revenue comes from three primary places:

"Fees" - generally, this covers a specific amount charged for some specific act. Thus, there are fees for getting a marriage license, registering your car, etc.

"Tariffs" - these are levies placed on the exchange of goods, almost always at the point where they either leave or enter the country.

"Taxes" - this covers pretty much everything else, from the percentage levy on income (both business and personal), to sales of goods and services, to levies on landowners (property tax).

In the "old days" of pre-Civil War, most of the US Federal Government revenues came from tariffs, while state and local governments used property taxes.

In the late 1800s, taxes of various sorts become much more important to the Federal government. Thus culminated with the Income Tax Amendment (16th) in 1913. From then until now, taxation has been the major source of Federal money.

For State and local governments, however, Fees have begun to seriously challenge taxes as the major source of revenue, particularly at the local level. As of now, most States still get the majority of their money from either (or both) of a Sales Tax and Income Tax, but most also get up to a third from Fees. Localities, on the other hand, are in many places now majorly funded by Fees rather than property or sales tax. Fees have the advantage that they are directly proportional to the service being delivered (that is, if more of service X is desired, and there is a Fee for X, then revenues go up with expenses). They have the disadvantage of falling most heavily on those who can afford them least (i.e. fees are regressive in nature).

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βˆ™ 2010-10-02 08:19:20
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Q: Why does government collect taxes?
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