What type of tax system does the United States government use to collect income taxes?

Purpose

To give students an overview of the role and purpose of taxes in American history

Objectives

Students will be able to

• identify the goals of creating taxes.
• identify different types of taxes implemented by the U.S. government.
• explain the origins of the federal income tax.

Background

American lawmakers have always worked to balance three goals in the process of creating taxes-to build revenue, to influence people's spending habits, and to be fair to all taxpayers. Below is an overview of the evolution of taxes in the U.S. Constitution.

1781-1789

The writers of the Articles of Confederation did not support a strong federal government. Only state governments had the power to tax, and they had to turn over tax revenues to the federal government. The Constitution gave the federal government new, stronger powers to tax citizens directly. Taxes were in the form of tariffs and excise taxes, providing the federal government with ample revenue for many years. These types of taxes can be considered regressive, because people with lower incomes had to pay a higher percentage of their income than did people with higher incomes.

1862-1872

During the Civil War, the federal government required more revenue than tariffs and excise taxes could provide. A tax on income was established during the Civil War and was abolished after the war.

1913-Present

Because of industrialization and modernization, many people gained huge fortunes that were not taxed in any way. A tax on income was intended to make the system of taxation more equal. The ratification of the Sixteenth Amendment in 1913 gave Congress the right to collect income taxes. Now, people with higher incomes paid more in taxes than those with lower incomes. This form of taxation is known as a progressive tax.

Key Terms

excise tax

A tax on the sale or use of specific products or transactions.

progressive tax

A tax that takes a larger percentage of income from high-income groups than from low-income groups.

regressive tax

A tax that takes a larger percentage of income from low-income groups than from high-income groups.

revenue

The income the nation collects from taxes.

tariff

A tax on products imported from foreign countries.

Developing the Lesson

Distribute Info Sheet 1: Evolution of Taxation to students. Explain that the current system of taxation in the U.S. has developed over the course of more than two hundred years. Lawmakers continually change and fine-tune the system. Ask students to identify the kinds of taxes the government implemented in each time period. (tariffs, excise taxes, income tax). Ask students to think of arguments for and against taxation. (Answers will vary.)

Classroom Activity

Print and distribute Info Sheet 2: Excerpts from Federalist Paper No. 30 by Alexander Hamilton and Info Sheet 3: Excerpts from Anti-Federalist Letter by Richard Henry Lee.

Have students read and compare the reasons for and against granting the federal government the power to tax as argued by Federalist Alexander Hamilton and Anti-Federalist Richard Lee. Challenge students to identify each writer's main points. Invite students to act out a mock debate between Hamilton and Lee.

• (Students should identify the following points: Hamilton believed that giving the federal government the power to raise and collect taxes would provide revenue to the nation and promote stability, efficiency, and trust within the nation and among nations in the international community. Lee objected to the federal power to tax because he believed that federal laws would cancel state laws. He also thought that the national government lacked the means to collect taxes efficiently and that corruption was a possibility.)

Concluding the Lesson

Have students discuss the advantages and disadvantages of the federal government's power to raise and collect taxes. Ask students to use Info Sheet 1: Evolution of Taxation to give a brief chronology of taxes in the United States and to identify the three goals lawmakers must meet when creating taxes. (build revenue, influence spending habits, be fair to all taxpayers)

Which type of tax system has the same rate for all income levels?

What type of federal income tax system does the United States use quizlet?