How the Government Uses Taxes & Subsidies

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  • 0:01 Taxes
  • 1:29 Public Services
  • 2:21 Infrastructure and Defense
  • 3:07 Subsidies
  • 3:51 Lesson Summary
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Lesson Transcript
Instructor: Jessica Whittemore

Jessica has taught junior high history and college seminar courses. She has a master's degree in education.

This lesson will explain how the government uses tax revenue. It will also discuss the purpose of subsidies, as well as public services and infrastructure.


In college, I had a political science professor who definitely had some strong opinions. When anyone would ever talk about government programs, or what the government should pay for, he would very loudly respond, 'Well, where do you think the government's gonna get the money to do all that stuff?' Before anyone else could answer, he'd answer his own question by very loudly saying, 'Your parents' pockets, that's where!' He'd then go on into a sermon on taxes and subsidies, the very topic of today's lesson! With this in mind, today we're going to take a look at these two terms, trying to understand their purpose within our American system.

We'll kick things off with taxes. Speaking rather academically, taxes are compulsory contributions to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions. Stated rather simply, taxes are the money people are required to give to their governments. Some of the forms taxes come in are income tax, a tax placed specifically on one's income, or extra cost placed on products or services. For instance, in the state of Pennsylvania, the government places a six percent sales tax on products that are not considered necessities.

Now that we have this term down, let's take a look at what the government does with its tax revenue. Our first answer is the government uses tax revenue to provide public services.

Public Services

To explain, public services are loosely defined as services provided by a government to its people. Great examples of public services are the supplying of drinkable city water, connection to gas lines, and even police forces that provide public safety. For instance, when we bought our home, we didn't need to dig up our ground and connect it to the water table. Our local government had already taken care of this for us. It's a public service they offer.

Public services also can take on the form of welfare. Again, keeping things very simple, welfare can be defined as financial and social support given to people in need. Keeping our conversation centered on taxes, the welfare system is greatly supported by tax revenue. In other words, the government will, through a very complex system, pass on its tax revenue to people in need.

Infrastructure & Defense

Leaving our discussion on taxes and public services, we now come to taxes and infrastructure. Infrastructure is defined as the basic physical and organizational structures (for example, buildings, roads, and power supplies) needed for the operation of a society. Infrastructure is tied to taxes since taxes are usually what are used to pay for the building and maintenance of things like roads and power plants. As my dad always used to say as we'd go past a new road or bridge, 'There are our tax dollars at work, kids.'

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