ABSTRACT
Taxes are an integral part of fiscal policy; the policy that deals with government revenue and spending. All responsible governments have spending priorities that must be met, but the obligations to meet spending priorities cannot be met without adequate revenue. Therefore, governments must decide the mechanisms through which they can raise funds in order to meet their spending obligations. In the US, public spending can be discretionary or mandatory. Discretionary spending refers to spending allocations that are decided by Congress on an annual basis through the annual appropriation process. Mandatory spending is federal spending that is contingent on existing laws rather than the budgetary process. As such, mandatory spending is not part of the annual appropriations process. Some governments get revenue from individuals, businesses, profits that are derived from investments, and bequests. In the modern economy, not all transactions are considered taxable. Some economic transactions or investments are tax-free or tax deductible to a limited extent, based on evolving tax laws.
