Oughout history, every organized society had some form of government. In free societies, the goals of government have been to protect individual freedoms and to promote the well-being of society as a whole.
To meet their expenses, government need income, called "revenue," which it raises through taxes. In our country, governments levy several different types of taxes on individuals and businesses. The Federal Government relies mainly on income taxes for its revenue. State governments depend on both income and sales taxes. Most county and city governments use property taxes to raise their revenue.
Government Services
Our American economy is based on the free enterprise system. Consumers are free to decide how to spend or invest their time and money. The goal of producers is to make profits by satisfying consumer demand. Open competition among producers usually results in their providing the best quality of goods or services at the lowest possible prices.
The free enterprise system does not produce all the services needed by society. Some services are more efficiently provided when government agencies plan and administer them. Two good examples are national defense and state or local police protection. Everyone benefits from these services, and the most practical way to pay for them is through taxes, instead of a system of service fees. Other examples are the management of our natural resources, such as our water supply or publicly-owned land, and the construction of hospitals or highways. Taxes are collected to pay for planning these services and to finance construction or maintenance. Revenue is also collected through user fees, such as at the entrances to national parks or at toll booths on highways and bridges.
Society benefits from a safe and healthy environment. In the free enterprise system, however, there is often little incentive for businesses to pay the extra cost for maintaining this kind of environment. Therefore government imposes regulations on producers such as auto manufacturers, who must install air pollution controls. These controls often add costs to the price of new cars. There are also regulations to control such things as the use of billboards and signs along highways. Other regulations control reclaiming land after strip mining, dumping industrial waste into streams and rivers, and noise pollution at airports.
The free enterprise system is based on competition among businesses. With competition, only the most efficient businesses survive. To ensure that a degree of competition exists, the Federal Government enforces strict "antitrust" laws to prevent anyone from gaining monopoly control over a market.
Some services, known as "natural monopolies," are more efficiently provided when there is competition. The best-known examples are the utility companies, which provide water, natural gas, and electricity for home and business use. Since there is no competition, government agencies carefully regulate the services, prices, and profits of the utility companies.
The free enterprise system assumes that consumers are knowledgeable about the quality or safety of what they buy. However, in our modern society, it is often impossible for consumers to make informed choices. For public protection, government agencies at the Federal, State, and local levels issue and enforce regulations. There are regulations to cover the quality and safety of such things as home construction, cars, and electrical appliances. There are also regulations for financial services provided by banks, insurance companies, and stock brokers. Another important form of consumer protection is the use of licenses to prevent unqualified people from working in certain fields, such as medicine or the building trades.
Our children receive their education mainly at public expense. City and county governments have the primary responsibility for elementary and secondary education. Most states support colleges and universities. The Federal Government supports education through grants to states for elementary, secondary, and vocational education. Federal grants used for conducting research are an important source of money for colleges and universities.
Since the 1930s, the Federal Government has been providing income or services, often called a "safety net," for those in need. Major programs include health services for the elderly and financial aid for the disabled and unemployed. Other major programs include financial aid to families with dependent children, and social services for low income individuals and families.
Taxes in the United States
Governments pay for these services through revenue obtained by taxing three economic bases: income, consumption and wealth. The Federal Government taxes income as its main source of revenue. State governments use taxes on income and consumption, while local governments rely almost entirely on taxing property and wealth.
