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Taxes and Society

IMPORTANT MESSAGE: We have compiled the list of questions below based on inquiries that we receive. This information is generic in nature regarding tax policy questions and is NOT intended to serve as tax advice. We also cannot provide up-to-date information on any Administration or Congressional proposals that may affect the information shown herein. Any questions regarding specific tax situations or for help in filling out your tax return should be directed to your attorney, accountant or other tax professional, or to the Internal Revenue Service. The IRS will not comment, though, on the legislative merits of current tax law, or on pending Congressional action that may change the tax code. Finally, we make every effort to make certain that the information contained here is accurate, but due to the fluid nature of the legislative process, changes in tax laws may occur that are not reflected here at the time of publication. To the best of our knowledge, this information is accurate.

Why do I have to pay taxes?

Oliver Wendell Holmes, former Justice of the United States Supreme Court, said, "Taxes are what we pay for a civilized society." In some respects, a "civilized society" is the rationale for government in the first place. The signers of the Declaration of Independence set out to establish a new form of government for the "protection of life, liberty, and the pursuit of happiness". To this end, the framers of our constitution enumerated the proper fiscal functions of government as "to pay the Debts and provide for the common Defense and general Welfare of the United States". Taxes are simply the preferred method for paying for these governmental functions, the other methods being the issuance of public debt and the issuance of money.

Justice Holmes' famous quote establishes the propriety of taxation, but it tells us nothing about the form or levels of taxation, and, indeed, matters have changed significantly in both regards over the years since his pronouncement. For example, in 1902 the Federal tax burden stood at 1.3 percent of Gross Domestic Product (GDP). A century later, the federal tax burden had risen nearly 20 fold, to 20.8 in the year 2000.

Taxes perform another important role besides funding government activities. Taxes also provide citizens with basic information regarding the total price for those activities. Government has become a dominant factor in our economy, absorbing significant resources for its purposes and redirecting many more resources through its regulatory policies and through a mixture of taxation and spending programs that remove resources from some areas to transfer those resources to other areas. It is critical, therefore, that citizens have as much information as possible regarding these diverse programs and regarding their aggregate totals so they may decide for themselves whether the government's activities are appropriate. Taxes, and especially the paying of taxes, yield citizens a personal sense of the total price of those activities.

Last Updated: 12/5/2010 10:28 AM