Taxes are payments that people are required to pay to a local, state, or national government. Taxes supply revenue, or income, to provide the goods and services that people expect from government.

     The Constitution grants Congress the power to tax and also limits the kinds of taxes Congress can impose. Federal taxes must be for the “common defense and general welfare,” must be the same in all states, and may not be placed on exports. The Sixteenth Amendment, ratified in 1913, gave Congress the power to levy an income tax.

     When government creates a tax, it decides on the type of tax base—the income, property, good, or service that is subject to a tax. It also decides how to structure the tax. The three basic kinds of tax structures are proportional, progressive, and regressive. A proportional tax is a tax in which the percentage of income paid in taxes remains the same for all income levels. A progressive tax is one in which the percentage increases at higher income levels. An example is the individual income tax, a tax on a person’s income, which requires people with higher incomes to pay a higher percentage of their incomes in taxes. In a regressive tax, the percentage increases at lower income levels. A sales tax, a tax on the value of a good or service being sold, is regressive because higher-income people pay a lower proportion of their incomes on goods and services.