Reasons Governments Levy Taxes
Taxes are the main source of revenue for the government. The government uses tax revenues to fund military spending, retirement programs, health care and to pay down the interest on the national debt. The government also uses taxes to influence the behaviors of its citizens and corporations.
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Defense Spending
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One of the roles of government is to provide for a national defense. Most governments today do this by creating a military. The costs of maintaining a standing army are significant and include the costs of training, housing, equipping and paying soldiers for their services to the country. Defense spending also includes the cost of developing new technologies that can be used for military purposes such as more effective weapons and unmanned technologies.
Retirement Programs
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A significant chunk of the annual federal budget goes toward paying for retirement programs like Social Security. Social Security provides retirement benefits to individuals who have paid into the retirement systems over the course of their working lives. In addition to Social Security, the government also must pay for pension plans for former government employees who are now retired.
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Health care
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Health care programs are another large portion of federal government expenditures. The two largest American health care expenses are Medicare and Medicaid. Medicare provides health insurance for retired Americans who are older than 65. Medicaid provides funding for health care for low-income individuals and families.
Interest Payments
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Many governments, including the United States government, have borrowed significant amounts of money and must pay interest on that debt. In 2008, payments on the national debt of the United States accounted for 8 percent of all expenses. This debt is held by a variety of people and organizations including private citizens, government agencies and foreign governments.
Altering Behavior
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The tax laws in any country are used to alter behaviors in addition to raising revenues. Individuals have a limited supply of money and so increasing taxes on behaviors the government dislikes can restrict people from participating in them. For example, when a government wants to reduce cigarette smoking, it can increase the taxes on cigarettes making them more expensive for people to buy. If a government wants to increase the number of companies that offer health care to their workers, it may pass a law offering increased tax deductions for payments that went toward workers health care.
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