Taxation

Part 1: Taxation

The primary purpose of taxation is to generate revenue for the government. Some taxes are designed to alter people’s behavior, however. The main purpose of import tariffs, for example, is to discourage people from buying an imported product in the hope that consumers will buy a similar product from a domestic producer. Taxes on cigarettes and alcohol are designed to discourage the consumption of those products by making them more expensive. (It may cost only a few cents to manufacture a pack of cigarettes.)

The most important taxes for the federal government are individual income taxes and payroll taxes for social insurance (i.e., Social Security and Medicare). The most important taxes for state governments are sales taxes. The most import taxes for local governments are property taxes.

People have various opinions about the best way to structure tax systems. Two important considerations are efficiency and equity.