The Federal Reserve and Taxes

Take a tour of the Federal Reserve at Fed101 and learn about banking. You can see a virtual bank, find out what happens to checks, and see how the Fed makes money.

Did you know that almost everything in the store has a sales tax? Find out what the sales tax is in your area.

Did you know that the president does not handle the money the government gets? The Fed does that.

In the United States, the government gets a lot of money. But who is in charge of it all and where do they keep it? Well it is the Federal Reserve System (The Fed), not the president. The Fed is the government's bank. The Fed is divided into a dozen banks and has its headquarters in Washington D.C. Its main job is to control the amount of money in circulation (number of bills and coins available for us to use). Here are some of the other things that the Fed does:

Checks on other banks and makes sure they're following the banking rules
Makes sure people who use credit are protected
Makes sure there is enough paper money and coin for people to use
Handles the government's checking account
Processes millions of checks that are sent between banks each day

The biggest Fed bank is in New York. It holds 13,000 tons of gold. Believe it or not, its walls are 18 feet thick and made from concrete! Mostly robots and computers work there because they have to process 2.7 billion dollars a year!

Your parents probably pay taxes. But what are taxes? Well it's money to help the government pay for things like schools and parks. Sometimes if the community needs something more expensive and there's not enough money, the government will raise taxes. The government decides on how much to tax people by looking at how much money the government needs and how much money people can afford.

There is another kind of tax; it is called sales tax. This is another way the government collects money. Sales tax is extra money you pay when you buy almost anything. What I mean is if you go to the store and buy a shirt it will cost more than what it says on the price tag because of taxes. Like if the government has a 5% sales tax, that means that if you spend $1.00 you will have to pay 5 cents in taxes.

Even with all the taxes, sometimes the US government runs out of money. When that happens, the government has a national debt. A debt is money that is owed. Sometimes the government goes into debt from the cost of war.

Citations

Book

Godfrey, Neale S. Neale S. Godfrey's Kids' Money Book. New York: Children's Financial Network, Inc., 1998.

Images

Images of gold block, price tag, and bank from "Microsoft Office Online" <http://office.microsoft.com/clipart/default.aspx?cag=1> Images free for non-profit and personal use. (October-February, 2003-2004).

Glossary

Fed - The main bank of the U.S. government is called The Federal Reserve System (Fed for short). Return

Taxes - Money people and businesses have to pay to the government. There are different kinds of taxes such as sales tax and income tax. Return

Sales Taxes - An extra charge or surcharge on most purchases that is usually added by the seller. Return