Hello Johney!

Hello Grandpa!

Oh sure, I know all about taxes.

Can you teach me about taxes?

Well I guess we better start from the beginning. Taxes are thought to date back at least as far as ancient Mesopotamia and ancient Egypt.

In the United States sales taxes were enacted in the earliest part of the 20th century. In 1935 FDR signed the Social Security Act and taxes were collected.

According to some people taxes make civilized society possible. In their minds taxes help people access a variety of services the economy might not generate.

Well what services use tax money?

Services that are paid for with taxes include education, national defense, infrastructure, and public safety. Taxes can also help redistribute wealth.

Inheritance tax is a tax charged to a person who receives an inheritance. In some states, like Virginia, there is no inheritance tax, but in some states it is as high as 40%. There is no Fed tax.

What about expensive things are they still taxed?

Yes, luxury taxes are an extra tax on items like furs and jets. On things like alcohol and cigarettes there is a special tax often called a "sin tax."

So they're using taxes to influence what people buy?

I guess you're right. It seems like they are using financial pressure in the form of taxes to influence citizens decisions. Do you think that that's OK?

No, I think people should buy things based on their needs and wants.

Well if you were writing the tax code for the US in 2019 what would you encourage and discourage? Right now tax penalties are used to prevent people from making unwise decisions.

I would encourage employment, education, health, and charity. I would discourage criminal behavior and reducing jobs.

Another tax is carbon tax, an extra charge for producing or using greenhouse gases for their benefit which disrupt the environment.

Well what about money that you make from working?

Well income taxes and property taxes are both forms of direct taxes, taxes that are imposed on incomes and profits which are sent straight to the government.

What about when you buy something from the store?

Well, indirect taxes are imposed on spending and increase a business cost of production in which the prices are charged to the consumers. Sales taxes are imposed on the sale of goods and services.

And everyone pays the same amount for the goods and services?

Yes, sales tax is considered regressive because it treats wealthy and poor people the same and is established by the state. If people who make more are taxed heavier it is considered a progressive tax system.

Do we have a progressive tax system?

Yes, and there are seven major tax brackets - 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Your tax bracket is the rate one pays based on the highest dollar of taxable income.

How much would you be taxed?