Income Tax--The EZ Guide
Benjamin Franklin famously said that "In this world nothing can be said to be certain, except death and taxes." But for most of the history of the United States, individuals did not pay income taxes at all. Even after 1913, when Congress first imposed the modern income tax, individuals paid only between 1% and 7% of their personal income in taxes, compared with the present-day range of 10% to 35%. And for many years, individuals were allowed so many deductions that very few people paid any income tax at all.

What changed? First, the huge financial costs of fighting World War II (1939-1945) raised income tax rates considerably. Then even higher income taxes were required to pay for rising health care costs, the high price of Social Security benefits, increased defense spending, and the cost of a host of other government programs that many of us take for granted. The following articles provide background information on income taxes--it's just possible that the more you know about where your income tax dollar goes, the less painful it will be to open your wallet each April.

• Income tax--an overview of income tax in the United States and Canada, including profiles on the various types of income tax, its history, and explanations of how individuals compute and file their income tax. The article also discusses the most significant debates over income tax, including tax loopholes and shelters, capital gains tax, the so-called marriage tax, and other issues.
• Public Finance--background on how governments raise money, how that money is spent, and the effects of these activities on the economy and society.
• Taxation--a comprehensive primer on all types of taxes, how government spends taxes, the underlying principles of taxes, their history, and their effects on the economy and society.
• Commonly used tax terms--a glossary of tax terms you should know.

Where Does the Government Get Its Money?
Income taxes paid by individuals comprise the largest single source of money used to fund federal government programs. And individuals pay a larger share of these programs today than ever before. In 2002, individual income taxes accounted for approximately 49% of the total money the federal government raised to pay its bills, up from about 40% in 1950. By contrast, corporations pay less income tax than they used to; corporate income taxes accounted for just 10% of federal revenues in 2002, down from more than 26% in 1950.

• U.S. federal revenues--this chart illustrates the percentage of total federal revenues paid by individual income taxes, corporate income taxes, social insurance receipts, and excise taxes.
• U.S. federal receipts and outlays--this table lists the amounts of money collected by the federal government ("receipts") from various sources, from 1940 to 2003. It also identifies the amounts spent on various government programs over the same period.
• Fiscal Policy--a primer on the government's economic policy related to taxation and government spending.

Where Does Your Tax Dollar Go?
The federal government spends most of its budget on just a few programs. In 2001, social security, defense, Medicare, Medicaid, and interest payments on the national debt accounted for three-quarters of all federal spending. The rest goes toward a wide variety of programs, such as education, transportation, health programs, veterans' benefits and other areas. 

About two-thirds of federal expenditures is considered mandatory spending; the government spends this money automatically unless the President and Congress change the laws that govern it. Mandatory spending goes toward such entitlement programs as social security and Medicare, and it also goes toward paying interest on the national debt. The rest of government spending is considered discretionary; each year the President and Congress must decide which programs this money will fund. Discretionary spending goes toward such diverse programs as defense, highway construction, the FBI, housing, foreign aid, space exploration, and other programs.

• U.S. federal government spending--this chart illustrates federal government spending for fiscal year 2004, broken down by major categories. Social security benefits account for the largest percentage of federal spending (21.7%), followed by spending on national defense (17.4%).
• How government spends taxes--this provides the skinny on where your tax dollar goes, on the federal, state, and local levels.
• Changes in U.S. federal spending--this chart tracks changes in the categories of spending by the federal government since 1940. Beginning in the 1970s, spending on human services such as social security and Medicare has grown to the point where it now dwarfs federal spending in other areas.
• Social security programs in the U.S.--a listing of the various social security programs, matched with explanations of who pays, who administers, and who benefits from each. Every working American has a portion of his or her paycheck withheld to pay for these benefits, which account for the largest category of federal spending.