The Federal Income Tax is the largest source of revenue and funding for the U.S. government. It is key to a prosperous and functional society’s economic momentum and common development. But Why is it important to pay taxes? Easily, so there is a good relationship between citizens and the economy.
Paying taxes allows the country to advance essential services such as health care, infrastructure, and education. How taxes are collected and invested or spent determines the legitimacy of a government.
At larger scales, the federal tax shifts larger tasks to the government, such as providing social safety nets through Social Security and Medicare and defending the country.
Reasons why we should pay taxes
Some consider taxes a large burden that takes up most of their salary. The question of whether it is really important to pay taxes arises when it is unknown where the money that’s collected ends up.
There are several reasons why it is necessary to assume the responsibility of paying taxes. They fall on the common good of the citizens and the country or region where they reside and are divided into two areas.
1. In a society
The government plans social projects, but the development force depends on the citizens. Without taxes, responding to people’s demands is impossible, especially regarding the most necessary public services.
- Education: Undoubtedly, education is one of the areas that most requires attention, and this is achieved with the payment of taxes. It is fundamental to the development of the country and human capital. Public schools are financed, equipped, and cared for thanks to tax money.
- Health: tax collection also helps the health sector. It especially finances health services such as medical research, social security, and social health care.
- Governance: governance is directly linked to the functioning of the country. The government manages the money collected through taxes and uses it profitably for all citizens. The money is also used to pay the police, public services, parliamentarians, postal system, among others.
- Other sectors: environmental protection, security, and scientific research are part of the different sectors necessary for the welfare of citizens. It is important to pay taxes because they allow you to finance projects such as unemployment benefits and pensions. Remember that taxes help stimulate a nation’s economic growth.
2. In business
The prosperity of businesses is linked to roads in excellent condition, good electricity and telephone service, and a good infrastructure. The government develops this infrastructure by collecting taxes while at the same time promoting economic activity.
The government can return the money paid by businesses through taxes to the economy in the form of loans or financing.
As already mentioned, taxes help improve the country’s quality of life. In that sense, consumption will be high as long as the standard of living rises. This favors companies as they will have more internal consumption.
What taxes are important to pay?
All taxes are necessary; each one guarantees good services and the nation’s economic growth. To understand what taxes exist and why it is important to pay taxes, you need to know about each one.
The U.S. tax system is complex; understanding the basics of the types of taxes can be valuable for financial planning. Especially for the first month of each year.
1. Income Tax
Income tax can be levied at the federal, state, and local levels. Payments at the national level will depend on several factors, including income and marital status. At the state level, they vary considerably.
Florida does not charge income tax. Some states use a flat income tax rate. While in others, different tax rates apply, depending on income.
2. Sales Taxes
These are taxes on goods and services purchased. They are generally calculated as a percentage of the price already paid. This type of tax varies according to the state or municipality of residence.
Some states do not charge sales taxes at the state or local level. Other states charge substantial amounts. Sales taxes, in some cases, are regressive; low-income households pay a large number of their earnings to cover taxes as opposed to higher-income individuals.
3. Excise taxes
Excise taxes are similar to sales taxes, the difference being that they are levied on specific goods. They are charged for sinful products such as beer, cigarettes, and gasoline.
These taxes are not only intended to raise money but also to discourage certain unhealthy behaviors. Sometimes excise taxes are combined with sales taxes on the same purchase.
4. Payroll taxes
This is made up of two taxes that employees and employers must pay. The Social Security tax is 6.2% of the employee’s salary; the employer matches the amount for 12.4%. The Medicare tax is 2.9%, which equals 1.45% for the employee and the employer to fund the program.
5. Property Taxes
Property taxes are based on the market value of the property. In most cases, it applies to real estate, although it may apply to other property, including a vehicle.
These taxes are generally deductible, but in cases where it is for the public welfare, not for improvements that increase the property’s value. Some people qualify for a mortgage interest deduction.
6. Estate Taxes
The IRS considers the estate tax a tax on the right to transfer property at death. Among the items considered estates are cash, insurance, real estate, securities, and business interests.
The federal government only taxes estates above $5.30 million, so most individuals are exempt from paying federal estate tax. A tax rate is charged, and the highest rate at the national level is 40%.
7. Gift Tax
It is similar to the inheritance tax since it is levied on the transferred wealth. It differs because it involves two living persons. Gifts of more than 14 thousand dollars must pay tax produced by the beneficiary.
It applies not only to cash but also to company shares and vehicles. The highest gift tax rate is 40% on the taxable amount of the gift or donation.
It is essential to know that not all taxes are paid simultaneously. Some taxes are deducted from the paycheck. Three types of taxes are reflected on an employee’s pay stub and are the most widespread: general income taxes, payroll taxes, and state income taxes.
It is important to pay taxes, whether federal, state, or local, to enjoy good public services and quality of life. To see a country’s economic growth, collecting taxes is essential.