Table of Contents
Should we have a flat tax? Why or why not?
Reports indicate that the benefits of a flat tax system far outweigh the demerits. As such, it is highly recommended that a country should have a flat tax system. It will be beneficial to a nation due to various reasons such as transparency and fairness. Moreover, by reducing the IRS, its simplicity is compelling and it will assist in reducing the corrupt approaches used by individuals to use loopholes in the tax codes to support political activities (Adhikari & Alm, 2016). A flat tax system is bound to have a pro-growth effect especially on the marginal tax rates. Through it, the government can effectively reduce the tax bias on cash saved against cash invested. 53% of the American population pay the federal income tax. Through a flat tax system, the tax burden will be reduced for the 53% of citizens because it is based on accountability since it is driven by policies of every individual paying a fair share of tax based on their income. Furthermore, a flat tax system is useful in assisting business people to eliminate the Payroll tax (Adhikari & Alm, 2016).
What are the merits and risks of other tax-based reforms?
Please assess at least one additional reform. Examples include, but are not limited to: a national sales tax, value added taxes (VAT), eliminating a variety of deductions or credits.
Updating or using an updated tax code can significantly fix the elimination of credits as well as income deductions. It might be painful to a lot of citizens but should be noted that the whole system comprising of deductions, taxations and credits is profoundly biased (Li, Xiong & Xie, 2018). This is why individuals earning a modest income or citizens in the middle class are required to employ the use of a standard deduction which uses a system determined by the IRS. Moreover, it should be noted that taxpayers who get subsidies to purchase products such as vehicles, and homes, are taxed the same amount. Some of the income such as the municipal bonds received by taxpayers is tax-free income but it is clear that credits and deductions should be put forward to create a fair system. For the VAT, significant merit is that investments, as well as savings, are not taxed (Li et al., 2018).
- Adhikari, B., & Alm, J. (2016). Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods. Southern Economic Journal, 83(2), 437-463. doi: 10.1002/soej.12152
- Li, H., Xiong, Z., & Xie, Y. (2018). Resource tax reform and economic structure transition of resource-based economies. Resources, Conservation And Recycling, 136, 389-398. doi: 10.1016/j.resconrec.2018.05.014