The United States currently uses a progressive tax system. While paying taxes is inevitable, many American citizens feel that the taxes they are required to pay are unfair. Some maintain that the progressive tax system that is currently used should be changed, arguing that the existing system punishes the rich and rewards the poor. Is there a better system for taxation? Or, is the system that is already in place truly the best for America?
Former President Barack Obama made the US income tax system more progressive by raising taxes on the wealthiest Americans and producing tax cuts for the middle class. Generally, more liberal thinkers believe a progressive tax system is the best and most fair way of taxation. A progressive tax system requires higher income earners to pay proportionally higher taxes in order to promote equality among different income levels and social classes. It is said that progressive taxation “places the majority of an economic burden where it belongs” (Lombardo) where the wealthiest citizens pay the highest percentage and the bulk of the taxes. While the lower income people can still pay a small percentage giving them “personal investment into their citizenship.” (Lombardo) With the wealthiest carrying the highest burden of taxation it “produces more total income for the government because they have a greater ability to pay” (Lombardo) and it is less of a burden to them. Some consider this to be a type of redistribution of wealth and is done in hopes of helping the lower income citizens to improve their situations thus helping to improve local economies by leaving lower income citizens with more personally earned income to spend.
It has been argued that a progressive tax system can be very expensive to run. “The IRS estimates that it costs approximately $20 billion annually to implement?? in the United States.” (Lombardo) It also encourages inequality because almost half of American citizens pay little to no taxes while some citizens pay up to 50% of their income in taxes “With the argument that everyone should pay their fair share some pay more than they should because some pay nothing at all.” (Lombardo) One concern is jumping from one tax bracket to the next. Sometimes in doing so one might owe more in taxes than the actual increase in income produces, causing one to maybe not want the raise or to take the promotion etc. Sometimes within the system a lower income earner may not qualify for the same deductions such as home interest, child tax credits etc. as a higher earner causing them to possibly pay the same or a higher percentage in taxes than a higher income earner. Another concern is politicians giving tax deductions and cuts in return for political favors, giving those without political ties the bigger tax burden.
Senators Ted Cruz and Rand Paul both propose a flat tax system where everyone pays the same percentage in taxes regardless of their income. Senator Rand Paul proposes a flat tax of 14.5% which would apply to wages and other sources of income such as salaries, dividends, capital gains, rents, and interest. He believes a flat tax system will balance the budget, put an end to tax hikes, spur economic growth, and simplify taxes for everyone, both the US citizens as well as the IRS. (Paul) Under this plan there would still be a child tax credit, so potentially a family of 4 would not be taxed on the first $50,000 of income. (CRFB.org)
With a flat tax system paying taxes becomes less complicated and simplifies filing because, as Daniel J. Mitchell, Ph.D. states: “other than perhaps a child tax deduction the rest of an individual’s income is taxed at the same rate as every other citizen.” This simplifies and takes the tax form down to a postcard that one could file themselves without having to know complicated tax codes or needing to hire an expensive accountant to do their taxes. It also reduces the need and cost of the IRS due to the simplicity of the tax code. The time for auditing and making sure citizens are in compliance would dramatically decrease saving the government billions of dollars. It would also discourage fraud and encourage more compliance with tax laws. It reduces or gets rid of double taxation by moving certain taxes to the business level such as dividends, interest and other forms of business/capital income. Mitchell also states “Many economists are attracted to the idea because current tax systems, with high rates and discriminatory taxation of saving and investment, reduce growth, destroy jobs and lower income. A flat tax would not eliminate the damaging impact of taxes altogether, but by dramatically lowering rates and ending the tax bias against saving and investment, it would boost an economy’s performance.” (Mitchell)
Many people, including Robert Reich, former secretary of labor in the Clinton administration, are against the flat tax system and claim it is a fraud because they state that a progressive tax is the only fair way to tax people. The richer should have to pay more in taxes percentage wise than the middle class or the poor since they have more money to “play” with. They state that a flat tax benefits the rich and punishes the poor. It is also stated that it would not in fact simplify the tax code stating that deductions would not go away entirely causing people to still have to fill out a lengthy tax form. (Reich)
A few countries have no income tax at all. Instead these governments raise money to cover expenses in other ways. A sales tax approach to taxing American citizens has been proposed by Stephen Moore Cato Institute’s director of fiscal policy studies, he states “The entire personal income tax, corporate income tax, capital gains tax, and estate tax can and should be replaced with an eighteen percent national sales tax that protects the poor. Eventually, as we cut down on the size and scope of the federal government and accrue the dynamic revenue feedback effects of hyper-charged economic growth that would result from abolishing the income tax, the sales tax rate could be lowered to well below 15 percent.” He proposes eliminating all tax deductions and abolishing the IRS. His no income tax system would be based on consumption and not income believing this change would be explosively positive and he states that an income tax is “incompatible with a free society.” He talks about how the IRS infringes on citizens’ rights to privacy and intrudes basic civil liberties.
Switching to no taxes could be a viable option but it would take a major overhaul of how the United states does taxes. In Moore’s article one of the arguments raised against a sales tax system is that the income tax would never truly go away, leaving Americans then paying higher sales tax along with income taxes taking even more money out of the pockets of hard-working Americans. Another argument is that once state sales taxes are added into that figure, they would pay a much higher percentage in sales taxes on all goods purchased. This percentage could be upwards of 20-25% or even more. Also, the cost of goods and services could dramatically increase as corporate taxes are raised to cover the difference for businesses. Another thing to consider is how a sales tax only system would affect the poor and middle class if all of the sudden everything they purchase is taxed at a high rate. This could dramatically affect their spending abilities.
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