HY 357 Lecture Notes - Lecture 60: Internal Revenue Service, Flat Tax, Tariffs In United States History
6 Jun 2018
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Taxation and Spending
Most people want the government to do something for them, whether it's agricultural price
supports, veterans' benefits, or Medicare. None of these things are free, and the government taxes
its citizens to raise the money to pay for the programs. Until 1913, the revenue of the federal
government came mainly from protective tariffs, which are taxes on goods imported into the
country, and from the sale of public lands. But the tariff policy caused high prices, and the
federal graduated income tax was instituted through the Sixteenth Amendment to make up for
receipts lost when goods were too expensive to purchase.
Types of taxes
Many policy analysts believe that one purpose of government is to redistribute wealth.
The terms used to describe methods of taxation reflect these values. Taxes that place a
heavier burden on the wealthy are called progressive taxes.One example is the
income tax, which (at least in theory) imposes a higher tax rate on those making more
money. Property, inheritance, and capital gains taxes are also usually progressive.
Many voluntary taxes are regressive taxes, which is to say the poor provide
government with a disproportionate share of the revenue. Examples include gasoline
taxes, as well as sin taxes such as those on liquor, cigarettes, and gambling. Some
taxes are neutral, hitting everyone equally — such as the sales tax, in which everyone
pays the same tax percentage when buying a product. Nevertheless, analysts usually
call the sales tax regressive, in part because it does not "steal from the rich and give to
the poor," and in part because a larger share of income goes toward necessary
purchases for a working-class family than for a rich one.
Tax-reform efforts
Not paying taxes is illegal, but the government offers numerous loopholes that
individuals and corporations may use to reduce their tax burden legally. Although the
technical details can be quite complicated, the basic idea is simple: The government
gives tax breaks to individuals and companies who act in a manner that policymakers
want to encourage, such as buying a home, adding equipment in a factory, placing kids
in child care, or entertaining clients at restaurants and sporting events. In the early
1980s, these tax deductions were sometimes so generous that large corporations did
not pay any income taxes at all, leading some to conclude that the income tax system
was not progressive so much as haphazard.
Proposals for tax reform include closing loopholes, simplifying tax filing, and changing
tax rates. Under the 1986 Tax Reform Act, the number of tax categories was reduced,
rates were lowered, and many allowable deductions were eliminated. These changes
did not work as planned. Incoming tax revenue proved much less than first estimated
under the law, and President George H. W. Bush was unable to keep his "no new
taxes" pledge, which became a factor in his defeat in 1992. Under President Bill Clinton,
tax rates were lowered for the poorest Americans and raised for the wealthy to make
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Document Summary
Most people want the government to do something for them, whether it"s agricultural price supports, veterans" benefits, or medicare. None of these things are free, and the government taxes its citizens to raise the money to pay for the programs. Until 1913, the revenue of the federal government came mainly from protective tariffs, which are taxes on goods imported into the country, and from the sale of public lands. But the tariff policy caused high prices, and the federal graduated income tax was instituted through the sixteenth amendment to make up for receipts lost when goods were too expensive to purchase. Many policy analysts believe that one purpose of government is to redistribute wealth. The terms used to describe methods of taxation reflect these values. Taxes that place a heavier burden on the wealthy are called progressive taxes. one example is the income tax, which (at least in theory) imposes a higher tax rate on those making more money.
