It wasnt until 1913 that the United States introduced an income tax. Along with the 16th Amendment came income taxes, first levied on individuals. While income taxes were created primarily for economic reasonsto help raise revenue to operate the government, expand investments, reduce unemployment, and control inflationthey also were created to help establish a form of social policy.

The economic reasons for income taxes are to maintain andwhen necessaryimprove the overall health of the national economy. Economic-based taxes include taxes on things like income, property, and goods. These taxes help fund government programs that benefit a wide cross-section of the populationlike social security, healthcare, public schools, and defense spending. Taxes on things like cigarettes are a form of consumption taxthis tax helps deter smoking by making it more expensive, while the revenue from the tax is also used to help fund education programs and awareness of the hazards of tobacco use.

The social goals of income taxes contribute to the financial success of our society as a whole by improving individual, financial well-being. Tax laws and rules that drive social behavior include child care credits, education credits, charitable contribution deductions, IRAs (individual retirement accounts), and employer-sponsored deferred benefit savings plans such as 401(k) and 403(b) plans.

Both types of taxes help to improve our society and economy even though they function in different ways. While economic taxes raise revenue to fund vital government programs that benefit all taxpayers, socially-derived tax laws help improve society by rewarding those individuals who participate in activities that strengthen our communication and economy.

Here are some examples of socially based tax laws that our society and economy benefit from:

In 1998, Congress made available the Coverdell Education Savings Account (ESA) which allows any individual to contribute $2,000 per year to an IRA as a means to fund the rising costs of college tuition. The advantage of the ESA, as opposed to other savings vehicles, is that the contributions to this account and the earnings it generates may be withdrawn tax-free if they are used to pay for college tuition.

The Taxpayer Relief Act of 1997 established the Roth IRA, named after Delaware Senator William Roth, to help drive individuals to plan for retirement. As of 2012, taxpayers can contribute up to $5,000 a year ($6,000 a year for those over 50) for themselves to a Roth IRA and never pay taxes on the contributions and earnings upon withdrawal.

In 2009, the American Opportunity Tax Credit was passed, offering a partially refundable tax credit worth up to $2,500 per student per year. This credit helps more than 8 million students and their families afford the cost of college.

The Earned Income Tax Credit, sometimes called EIC, is a tax credit to help individuals keep more of what they earn. Its a refundable federal income tax credit for low- to moderate-income working individuals and families. Congress approved the tax credit legislation in 1975 partly to offset the burden of social security taxes and to provide an incentive to work.

The American Recovery and Reinvestment Act of 2009 is a former tax law (no longer current) that offered a tax credit for first-time homebuyers of up to $8,000. This was created to help make home ownership attainable for many Americans and to help stimulate economic activity during a period of recession.

The former Making Work Pay provision of the American Recovery and Reinvestment Act of 2009 provided a refundable tax credit (in 2009 and 2010) of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

Put on your state and federal thinking caps to come up with new laws one that is socially based and one that is economically based.

1. Write a new law that's socially based stating the purpose of the law, who it would impact, funding sources, and if it would be administered on a state-wide level, federally, or both.

2. Write a new law that's economically based, stating the purpose of the law, who it would impact, funding sources, and if it would be administered on a state-wide level, federally, or both.