Why Do Governments Levy Taxes?

Defense Spending

One of the basic functions of a government is to keep a military force to protect itself. The United States maintains an Army, Navy, Air Force, Marine Corps and Coast Guard. To maintain these groups, there are a number of costs, including paying, training and arming the troops, and providing them the needed supplies and equipment. The government must also pay for people to study new military technologies and determine how to apply new tactics.

The U.S. government, even though it does not have a government-run health-care system, spent about 20 percent of its 2008 budget on two medical care programs: Medicaid and Medicare. Medicaid offers medical care for people who could not otherwise afford medical care. Medicare is similar to the Social Security system in that it provides health care for people when they reach retirement age after paying into the system while working.

The Social Security program is funded by taxes on the wages of the working population that go toward paying retirement benefits of those currently retired. When you reach retirement age, you can start receiving a check from the government for all of the contributions you have made into the system during your career. In addition to Social Security, the government must also pay for the retirement plans of federal employees.

Over time, governments often accumulate excessive debt to pay for their operations. America's national debt as of August 2009 is more than $11.6 trillion dollars. This debt is in the form of intergovernmental loans and loans from private citizens and companies. These loans can take the form of savings bonds and Treasury bonds. In 2008, the American government spent about 8 percent of its budget on paying interest on its debt.

The amount and way that the government taxes its citizens and companies affects the way they live their lives and spend their money. For example, if the government wants to encourage companies to reduce pollution from factories, the government can either pass a tax on factories that pollute over a certain level or offer a tax incentive for clean factories. If the government wants to increase individuals' savings for retirement, it can offer a tax deduction for contributions to retirement plans.