The Philosophy Of Tax Reform

The tax policy in the United States is very confusing. When the tax policy was originally written in 1913 it was four hundred pages. Now, over the past ninety one years, that tax policy has evolved to over 72,000 pages. Since the tax code has become so lengthy and nearly impossible to understand, the topic of tax reform has been in the minds of many. Although, most barely think about tax reform until tax season. It is a controversial subject due to the impact a change in tax code would have on the American people. The two most popular and widely known stakeholders in this debate are the two major political parties in the United States, the Democrats and the Republicans. The two parties share absolutely no common ground on the subject of

The view on the current government tax policy is considered “bloated, complex, and antiquated system” that overburdens United States taxpayers. Back in 1996, a proposal was brought by Republicans to Congress which was then passed, but sent to Clinton who later vetoed

Recently, the public and the government of the United States have been at odds with each other over many enforced fiscal policies. Whether one believes that the answer to the nation’s economical crisis is an increase taxation of the wealthy one percent, or the leveling of the tax rate, every concerned citizen is searching for a solution. Typically, in American politics, the liberal side of the political scale believes that the wealthy should contribute more to the nation’s tax income. This idea centers on the notion that a lower tax rate on the poor will ease their burden and allow them to purchase more products; meanwhile, the rich will support the tax deficit from the lower classes with their own vast amounts of wealth. Opposite liberals, there is the conservatives. They will typically advocate for a tax break for business owners (wealthy or otherwise) or a more even tax rate across the socioeconomic classes. This outlook is supported by the idea that if the upper one percent of the U.S.A. is flourishing, it will produce more jobs and opportunity for the middle and lower class. Regardless of who is consulted, many people in today’s more liberal society will agree with higher taxation of the rich. However, there is a growing number of people in the United States that believe that the answer to solving the economic crisis is to abolish the current income tax and replace it with a national sales tax. By installing a national

The federal income tax system is an intricate system and increases its complexity through newly enacted laws and regulations. The tax codes are difficult to decipher; however, it is a system that maintains the development of an entire country. The political aspects serve to focus on major loopholes and develop strategies for improvements. The laws and regulations highly coincide and work cohesively to obtain its objectives. Undoing or restructuring the federal tax system would cause a major disruption on economic and social terms (Prescott, & Hardin, 2013).

This paper examines the generally accepted desirable characteristic of a system of taxation. I describe in this paper that even where every one agrees that the tax system should be simple as dictated by the first maxim of Adam Smith, no country is yet to meet this standard. Questions on policy, complexity, equity, administrative efficiency, cost of compliance all increasing the cry for a tax change. Many Eastern Europeans have adopted the flax tax system and presently has an increase economic growth. However, are they fully operating the flax tax system?

An Economic Reforms Priority research report issued by the Grattan Institute dissects the possible benefits of tinkering with GST. It calculates that the GST-exempt goods and services equate to about 40 per cent of consumer spending, which means the government gives up about $30 billion a year in revenue. The institute recommends the GST be applied to all of these exempt goods, thus the additional revenue could fund substantial income and corporate tax cuts that would increase economic growth. This would raise an extra $31 billion a year in revenue and add $20 billion a year to the economy or an extra $870 a year income for everyone. The tax system would be far simpler for the Australian people.

In the United States a consumption tax should one day become the most equitable and optimal way of collecting tax revenue. The current form of income taxation used in the U.S. is an incredibly complicated and costly means for generating government revenue. This tax system is renowned for its intricacy as it “has spawned a tax industry based on complexity created by our own government” (Bedard 2010). This tax code also founded the IRS which has been known to seize properties and invade extreme depths of privacy without court orders. Although, a consumption tax would not completely eliminate the need for the IRS, or a similar agency, it could certainly diminish the sweeping power currently held over individuals by this government institution.

Tax structures are complex and play a prevalent role in American society. Taxation is important to understand because the designed tax policies are intended to foster economic stimulation and behavior. Although economists differ on the appropriate American taxation structure, taxation promotes both incentives and disincentives in behavioral outcomes. These differing views are debated to whether the United States should adjust from its present progressive income tax structure, or an alternative taxation structure, such as a proportional, or flat rate tax. Whether a progressive income tax structure or a flat rate structure, it is essential to understand the advantages and disadvantages and its effects on economic stimulation and behavior.

In recent times, the decline in the income tax revenue base have led to a shift in the importance of indirect consumption taxes, such as the GST. This will allow for more flexibility to finance the cost of the ageing population while at the same time funding compensation for households who are affected by the increases posed by the reformation of the tax system.

Basic goods like rice, sugar, some meat, vegetables, basic medicine and baby powder are GST exempted. Due to the exemptions, the calculation of GST is done at the product level and not at the total consumption amount. GST charges also must be displayed clearly to show the amount charges so that it is clear to the consumers on the products charged and exempted from GST. All these measures will improve transparency at all levels and improve collection of overall taxes. According to the Custom’s Department, government expects collection of GST to be above RM23billion by end of the year. GST is expected to contribute to the total target of RM45.44billion tax collection for the

To many individuals, the current US tax system in place may seem to have always been such. However, many would be astonished to find out that the tax system has changed drastically in just the past few decades. The current US tax system, is personally, unfair as it currently exists. However, while there are major pervasive faults in current policy, the basis of it as a progressive tax still warrants support. With the changes put forth in this paper it is the hope that the resulting tax policy will provide an adequate revenue for public works while also spreading the burden of government funding fairly.

The central of issue in policy making is the fair distribution of the tax burden; the tax should minimize the social welfare of the individual’s subjects to his or her own budget constraints. A large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity. This article has tried to explore the path from basic research results of optimal tax theory to formulating policy recommendations. Further it has cast light on taxation of very high earns, second the taxation of low earners and third, taxation of capital income.

Taxation systems are usually modeled in such a way that they take into consideration the social welfare of the citizens. The government and other policy makers have the responsibility of ensuring that the system takes into account the needs of the citizens. The bottom line is that taxation should foster equal distribution of resources. The rate of taxation is usually arrived at after several considerations have been made. The rates are not fixed as they depend on the various economic changes. The issue of how taxation should be distributed among the different economic classes is yet to be addressed.

The proposed GST tax rate is expected to be around 23 to 25 percent which is a cumulative total of all the tax applicable in the country. However, the number is expected to come down over the years as the GST structure stabilises and the authorities get accustomed to it. Comparing it with the world average which is around 10 percent, the implementation might not significantly improve business sentiments since due to the high tax structure.

This paper proposes a method for evaluating the impact of tax structure changes on tax revenue. The technique consists of decomposing the gap between actual revenue and potential revenue into components attributable to changes in (i) the tax rate structure (ii) deductions and (iii) tax evasion.