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Policymakers use the tax system to raise revenue and to promote social policy goals. For example, they may want to encourage desirable behaviors, such as home ownership.

How to improve the tax code is the subject of much debate. Proponents of reform often call for increasing fairness and simplicity.

There are two main ways for governments to collect taxes. One is by taxing income directly. This is known as an income tax. The other is taxing only income that is spent.

Currently, some types of income are either taxed at lower rates than ordinary income or are exempt from taxation to some degree.

In general, only cash income is subject to the income tax. In-kind benefits—benefits that are received as goods or services rather than as cash—are not.

Tax credits and deductions are two ways to reduce tax liability. Tax credits directly reduce the amount of taxes owed, dollar-for-dollar.

The federal estate tax was enacted in 1916 in an effort to raise revenues. Its intent was also to reduce the concentration of wealth, thus increasing economic equality.

State and local governments issue bonds to finance important projects that meet social goals and benefit communities.

Excise taxes are sales taxes on individual commodities, services, or transactions such as motor fuel, cigarettes, or home sales.

States charge fees for the use of certain services. These fees are based on the principle that people should pay according to the benefits they receive.