Question

Market economy and taxation

Answer 1

The United States has a market economy-an economic system based on free enterprise.

In a market economy, money moves from the consumer to businesses when consumers buy goods and services. The government relies on tax revenue from the market economy.

Businesses pay sales tax, based on the purchase price of the goods. Other taxes include corporate income tax, based on business profits. In general, when a business's sales grow, so do its tax payments.

Taxpayers pay income taxes and payroll taxes to the federal government and may also pay income tax to state and local governments. Generally, the greater the income, the more a taxpayer will pay. Taxpayers pay sales taxes on goods purchased.

The government impacts the economy through the goods and services it purchases and provides. About one-third of the nation's economy is based on government spending. Most revenue for government spending comes from the collection of taxes.

When the economy is growing, consumers earn more and make more purchases. This increases business profits and boosts sales and corporate income tax revenue. Consumers may buy bigger homes (thus increasing revenue from property tax), travel more (thus increasing revenue from gasoline tax), and so on. In this way the government collects more taxes and has more money available to spend.