What Are Taxes?
The first thing to understand is that the government needs money to function.
Just like you or I need money to live our lives, the government needs money to provide the services that we all rely on: things like defense, education, healthcare, and infrastructure. In order to raise this money without resorting to things like robbery or national lotteries (both of which are technically illegal), they collect taxes from the citizens.
Taxes are like the government’s paycheck
In short, taxes are money that the government collects from citizens in order to fund public services like roads, schools, and national defense.
The government also uses taxes to help with things like disaster relief and Social Security.
There are two main types of taxes: direct and indirect.
Direct taxes are paid directly to the government, while indirect taxes are paid to businesses or individuals who then pass on the cost to consumers in the form of higher prices.
The most common type of direct tax is an income tax, which is what most people think of when they think of taxes. Other examples of direct taxes include property taxes and estate taxes.
Indirect taxes include things like sales tax and excise tax. These taxes are generally added onto the price of goods and services at the point of sale. So, whenever you make a purchase, whether it’s a new pair of shoes or a cup of coffee, there’s always one thing that’s included: taxes. When you buy something, the price isn’t just the base cost of the item—it also includes the tax on that item.
Basically, indirect tax is simply a percentage of the price of an item that goes to the government. The government then uses that money to fund public services like schools and roads. The amount of tax you pay on an item depends on what type of item it is and where you live.
For example, in the United States, books are not taxed while clothing is taxed at a rate of 4-10%. In Canada, books are taxed at 5% while clothing is taxed at 0-17%. As you can see, there can be a big difference in the amount of tax you pay depending on where you live.
Either way, taxes are funds that are collected from citizens to pay for resources that service the citizens.