http://www.economist.com/news/leaders/21618784-taxes-are-best-raised-broad-base-many-countries-it-worryingly-narrow-too-reliant
As much as we all say we hate taxes, they are a necessary part of any civilized society. While we can all (mostly) agree on this statement, the resentment towards taxes comes from the extremely high rates many of Americans, and others around the world, are required to pay each year. This leads to an environment in which the richest of the rich do anything they can to avoid sending large chunks of their money to the government while lower socioeconomic individuals aren't even required to pay an income tax. Economists argue that we could change this hesitance and hostility towards taxes by taxing a broader base, allowing rates to fall which would increase tax revenue.
This idea is directly opposite of what America, and other first world countries, are doing. Instead, the trend is a smaller proportion of the nation contributing the highest amount of income taxes. In 1979, the top 1% of Americans paid 18% of the income tax. Currently, they are responsible for 46%. There is a similar trend in the corporate world. While part of this is the fault of increasing economic inequality, bad tax policies are also to blame. There are two solutions to the issue at hand.
The first fix is tightening up the tax code to reduce the amount of deductions and exemptions that are given each year. This would increase the tax base and add 7% to our GDP. The second solution is focused primarily at corporations and closing the loopholes that allow them to dodge the taxes they should be paying. By updating tax law, companies will have a harder time avoiding taxes thus leading to more revenue and a wider tax base. While implementing both of these policies would be ideal, any step taken towards widening the tax base would be extremely beneficial to both the individual/ corporations as well as the government.
Taking the second proposed fix to changing the tax codes, closing up loopholes that allow businesses to avoid taxation, are you sure they are all loopholes? I know for a fact that some local governments incentivize the establishment of factorys and other major investments with reduced tax rates or flat out exception to it.
ReplyDeleteBy restricting the tax laws you remove a bargaining chip smaller local governments have to persuade the creation of local jobs.
I think you make several good points in your post. I agree with both of your fixes, tightening up the tax code as well as updating other parts of the tax laws. With more companies paying taxes that they theoretically should be paying, the revenue for the government would increase exponentially. Another point that was made in the article was that high income taxes encourage lazy work and complacency because nobody has the drive to get a promotion due to the higher taxes that come along with it.
ReplyDeleteBy changing the tax laws to better accommodate the nation as a whole, the government would see an increase in tax revenue while appeasing many people as well.
Although the policies mentioned in the post would be effective theoretically to increase tax revenue, there is a downside of closing loopholes and inevitably increasing the amount of tax corporations have to pay. A new trend is emerging where US companies are merging with other companies abroad and relocating their headquarters in foreign countries just to escape the high corporate taxes. This concept is called "tax inversion". The recent acquisition of Tim Hortons by Burger King has also come under fire due to the same reasons. If large organizations start adopting this trend, this could become a cause of concern for the economy and ultimately lead to a decrease in tax revenue.
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