“Taxes are the price we pay for a civilized society.” – Oliver Wendell Holmes
“There is no such thing as a good tax.” – Winston Churchill

There is probably no other political debate so controversial, speculative and historically long-winded as that of taxes. This is mainly due to the fact that taxes are viewed from so many different perspectives regarding their purpose and their effects on the economy and the individual. Considering their extreme complexity, this article will simply try to familiarize the reader with on both sides of the argument.

Why do governments tax?

There are many answers to this question, especially in America. First and foremost, to fund those things, which most believe the private sector, could not take care of – for example, national defense and roadways. Many taxes have been placed to fund wars, which place an economic burden on the warring country. Beginning with the levying of the income tax in 1913, which now accounts for approximately 44 percent of government tax revenue, taxes took on a more complex role, namely, social restructuring.

The income tax was intended to attack supposed wealth and power centralization in industrialized America through a progressive system. Ostensibly, the more money one makes, the larger the percent one pays in taxes. Many view this progressive system as a buffer to a free market, ensuring that monopolies do not form; others view it as a disincentive to the entrepreneur, and consequently a barrier to economic productivity and prosperity. Another type of tax is a regressive tax, which acts such that the smaller one’s income, the more they pay in taxes (proportionally).

There are many arguments regarding taxation in America, most of which are too economically complex to broach here. A very prominent one today centers on the national debt (which is at $8,527,035,869,123.85 as of Sept. 14), which is the accumulated difference between the government’s spending and revenue (Source: U.S. Bureau of the Public Debt). Many throw their arms up in protest when hearing of tax cuts. They reference the debt as a reason for increasing taxation. But, before becoming too enraged, realize that tax cuts are usually a product of an economic ideology. When taxes are cut, the economy grows and thus tax receipts (amounts paid) actually increase. Ronald Reagan viewed the U.S.’s economic stagnation and low savings rates, the lowest in the industrialized world by the late 1970s, as a product of heavy taxation and subsequently instigated a system of numerous tax cuts.

Why do we get tax returns?

This is a part of our system of tax withholding- the wage payer withholds an amount of tax from the individual’s paycheck, which is based on an estimate of their annual income. This amount is usually an overestimate, and thus the government (in particular, the Internal Revenue Service) owes the individual money. This system was started to protect against tax evasion and to alleviate the burden of the illiterate in regards to filing taxes.

Other important issues concerning taxation include the estate tax (taxes levied on inheritances), sin taxes (taxes levied on things like alcohol and tobacco), tax expenditures (revenue losses due to federal tax programs designed to encourage particular types of behavior through tax cuts involving that behavior) and numerous more. Always keep in mind that in politics and economics we need to look at things deeper: are corporations the driving force behind efficiency and productivity, or are they economic evils seeking to exploit the consumer and the individual?

Your views on human nature and social nature will shape your contingent views on things as seemingly far from philosophy and psychology as tax policy and government spending.

Further Reading:

Brownlee, W. Elliot. Federal Taxation in America: a short history. 2nd ed. Washington, D.C.: Woodrow Wilson Center Press, 2004.

Cordes, Joseph J.; Ebel, Robert D.; and Gravelle, Jane G., eds. The Encyclopedia of Taxation and Tax Policy. Washington, D.C.: The Urban Institute Press, 1999.

Davies, David G. United States taxes and tax policy. New York, NY: Cambridge University Press, 1986.

Slemrod, Joel. Taxing ourselves: a citizen’s guide to the debate over taxes. 3rd ed. Cambridge, MA: MIT Press

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