Taxes are the old traditional method of serving the native people. Government and tribes collected the taxes from people and spent on their wellness and better facilities. However after the industry revolutions, the financial system and government policies have been changed. There are a whole new bunch of tax informed and different ways to pay them. In this article, we will learn about five reasons why we pay taxes, who decides taxes, and the difference between taxes and bills. Whether you are a financial student or just bombarded with the tax, we are here to help you.
What is Tax and its Types:
Tax is a permanent payment or charge that every qualified person, business, house owner, and corporate person has to pay. Tax collection is the main source for the government to bear their expenses and run the country. Moreover it spends the money on the nation’s betterment. The government makes policies and runs different organizations to decide and collect taxes.
In the United States, the Internal Revenue Service collected the federal income tax. A person can pay their whole taxes and can also avoid them legally. But if you do not pay your due taxes, the government will take serious actions. The actions lie on your property, civil and criminal penalties, and fines.
Here are some basic and common tax types:
- Income Tax:
Income tax is the most common tax type, and only qualified people will pay it. In income tax, the government will cut some portion of your income. The baseline of the tax depends upon several factors like marital status, total income asset acquired, and non-filer profile.
You can check your status by clicking on this link, filling out the form, and evaluating your tax profile.
- Payroll Tax:
Payroll tax is a kind of corporate tax in which the employer takes a portion of the salary of the employee. Employers pay to the government for medical and social securities funds. In the USA, the employee will pay 1.45% on their Medicare and 6.2% for social security on every $160,200 earned.
- Corporate Tax
The government takes a percentage amount from corporations to fund public programs. In the USA, Congress has passed the 15% minimum tax into law as a part of the Inflation Reduction Act 2022. For the USA local corporations, the baseline is $1 Billion for a three-year book and $100 million for the foreign corporations.
- Sales Tax
Sales tax is applicable when we buy or sell any product. Generally, the government deducts some percentage from individual sales transactions. The government and its relevant departments decide the sales tax percentage. The highest sales tax percentage recorded in 2022 was 9.55% in Tennessee.
- Property Tax
Property tax is a tax that is based on the market value of real estate. It includes things like buildings and land that can’t be moved. Local governments, such as cities, counties, and other regional bodies, usually charge it. The assessed value of the land, which local assessors set, is often used to determine the due property tax.
5 Reasons Why We Pay Tax
Paying taxes is an important part of living in the modern world. The governments need tax money to do many things, including basic services. Here are the 5 reasons why we pay tax:
- Services and public infrastructure: Taxes are the main way local, regional, and national governments get money. Taxes bring the money to pay for public services and build and keep infrastructure. It includes general safety such as (police and fire services), sanitation, healthcare, transportation, education, and more.
- Programs for social welfare: Tax amounts help the programs for social welfare that help weak people. Some examples of this are food stamps, welfare, jobless benefits, and other programs. This helps people to escape poverty and live better lives.
- Supporting Defense and National Security: Defense and national security projects are paid for by taxes. Spending like keeping the military, intelligence agencies, and other parts of national defense in good shape. Protecting people and the country’s interests at home and abroad is an important function paid for by taxes.
- Law and Order: The police, courts, and prisons are all part of the legal and judicial processes paid for by taxes. Society needs these services to keep peace, do justice, and support the rule of law.
- Common Resources and Public Goods: Tax money provides everyone with common resources and public goods. Public goods, like clean air, public parks, and environmental protection, usually need to be paid for by everyone through taxes. This is because they are non-excludable and non-rivalrous, meaning everyone benefits from them. It’s hard to stop people from having those benefits.
Difference Between Taxes and Other Payments?
Taxes and bills are different financial ideas with different meanings and effects. Taxes are mandatory financial charges that the government puts on people to pay for public services and facilities. They must be paid, and doing so can avoid court problems. Some popular taxes are Income tax and land tax.
On the other hand, bills are optional requests for sent payment by businesses or service providers for goods. Some specific transactions go with bills, like utility bills or invoices for services performed. Bills, unlike taxes, are usually not required to be paid. Private businesses are responsible for paying the bills. Taxes pay for government services, while bills cover the costs of personal goods and services.
Taxes have been a way to support government activities and public services for a long time. Taxes are an important part of society and must be paid. As was already said, taxes play a significant role in funding essential services like social welfare, national defense, law enforcement, and public resources. Tax systems change over time to reflect economic conditions and government policy changes. Different types of taxes, like income tax, payroll tax, business tax, sales tax, and property tax, are used for different things.
It is very important to know the difference between taxes and bills. Taxes are the payment that every individual has to pay to the government for public betterment, while bills are payments for specific goods or services bought from private businesses.
As we learn about the complicated world of taxes, whether we are students of finance or regular people who have to pay taxes. This source of money helps the governments meet public needs, keep infrastructure in good shape, and take care of their people. In conclusion, paying taxes is a civil duty that keeps our towns running and improving, leading to a more prosperous and well-supported society.