Taxes are fees the government collects from individuals and businesses to pay its expenses. In 2010, the federal government alone collected $2.2 trillion in taxes.
Types of taxes include income taxes, payroll taxes, sales taxes and real estate taxes. Most federal tax revenue comes from personal income taxes, with payroll taxes coming in second.
How taxes are used depends on which level of government is collecting them. Federal taxes are used for such major outlays as national defense, Social Security and health care, and interest on the national debt. State and local taxes are used primarily for education, transportation, and law enforcement.
Personal income taxes are collected by the federal government and most state governments on April 15 of each year. Taxes also are withheld from your paycheck during the year as you earn income.
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There were two brief periods of national income tax in the 19th century, but the modern federal income tax was created in 1913 after the ratification of the 16th Amendment to the Constitution, which gave Congress the power to tax. This first income tax only affected the richest 1 percent of the population.
In 1916, Congress changed the text of the income tax law, removing the word "lawful" from "lawful business," so that all income, whether attained by legal means or not, was taxable. Because of this, many criminals who were guilty of other infractions were sent to prison for tax evasion.