Middle 4: Taxes, taxes, taxes

An old sign that explained how taxes were paying for the interstate highway system.


There’s an old saying that claims “nothing is certain but death and taxes.”

As we explained in Part Two of the Basic Civics section, the money citizens like you and I pay to the government is called taxes. And, as we said, taxes aren’t just for grownups.

You first paid a tax known as the sales tax when you first paid 55 cents for a pack of gum marked 50 cents (the last nickel was sales tax).

Taxes are complicated. In fact they are so complicated that there are people (known as accountants) who get paid just to help people pay their taxes.

We’re not going to try to make you into an accountant. But we’re going to explain a few things about taxes that we didn’t explain in Basic Civics.

(You’ll notice right off the bat that if you are going to learn about taxes, you need to know some basic math. This is a good time to make a point. You need to learn math. If you don’t learn math, you run the risk of being outsmarted when it comes to money your entire life.)

The branch of the federal government that collects taxes is called the Internal Revenue Service.

First we’ll talk about taxes that are paid to the federal (or national) government.

The main tax that people pay to the federal government is known as the income tax.

The income tax is set up so that people who are rich pay a higher percentage of their income in tax than people who are poor.

A person who makes $100,000 might pay 35 percent of their income, or $35,000, in taxes, while a person who makes $40,000 might pay only 20 percent of their income, or $8,000, in taxes.

Now for taxes people pay to the state of Tennessee.

This very busy map shows that Tennessee is one of the few states that does not have a state income tax.

Many states have a personal income tax. Tennessee does not.

Instead, Tennessee’s main source of tax income is the sales tax. The state of Tennessee collects 7 cents for every dollar transaction in Tennessee (although many transactions are exempt from the tax). So if your mother spends $100 to buy you some new clothes, she pays an additional $7 in taxes to the state of Tennessee.

Tennessee has no state income tax but a high sales tax

By the way, the sales tax isn’t the only tax that the state of Tennessee levies, but it is by far the one that accounts for the most money. Other taxes levied by the state include the corporate excise tax, the franchise tax, the gasoline tax, etc.

Perhaps one day you’ll get to learn about all these other taxes.

And what about your local (county and city) governments?

Most of that money comes from two main sources.

The first is called a property tax.

Everyone who owns property pays an annual tax on that property. The tax amount is based on the value of that property.

If you own a house worth $150,000, you might have to pay $1,000 in property taxes. If the person across the street has a house worth $75,000, he or she would pay half that amount, or $750.

The property tax rate varies from city to city and county to county. As a general rule, urban areas have much higher property taxes than rural ones.

The other big source of income for county and city governments is the sales tax.

Remember mom and her $100 in new clothes for you? We told you that the state levies a $7 tax on that purchase. Well, guess what? Local governments in Tennessee add another tax onto that amount equal to between 2 and 2.75 percent. So her total tax on the $100 worth of clothing would be between $9 and $9.75.

Taxes can get very complicated!

The Tennessee Department of Revenue collects taxes. Here is some of what you will find on their website.

Here are the main things we want you to understand:

* The federal (or national) government’s main tax is the income tax.

* The state of Tennessee’s main tax is the sales tax.

* The main taxes for local (county and city governments) are the property tax and the sales tax.

Now we’re going to tell you some things about Tennessee that everyone who lives here should know. Click here.