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The Current Tax System and Alternatives
Transcript of The Current Tax System and Alternatives
The Current U.S. Tax System
The Fair Tax
The Flat Tax
It is often called a proportional tax.
Under a flat tax system, everyone pays the same tax rate, regardless of income or wealth.
Fewer tax deductions and exemptions would still be in place.
1. Assuming you had to choose one of the three alternatives we discussed to replace our current tax system, which would you choose? Why?
2. How much stock do you place in the "fairness" of a tax to the lower class when evaluating how well a tax can work?
3. How progressive or regressive do you believe the U.S. tax system is?
The Value Added Tax
What is the Value-Added Tax?
Decreased spending would occur.
Benefits of tax deductions and credits would be eliminated.
Americans would lose incentives from the lack of tax benefits.
Black markets in purchasing would likely arise.
When the prebate is not enough, the tax would become regressive.
It is simple and easily understood.
Tax payers save money on not meeting with tax professionals.
There is no tax discrimination based on income, which to some is fair.
Implementing a lower flat tax rate could encourage people to work harder, earn more, and take part in business investments.
Referred to as the VAT
A type of consumption tax
Similar to the retail sales tax in the United States
Product is taxed each time value is added to it
Used in the European Union
Implications of the VAT
Proven to work in other nations
Is actually a simpler system
Gives advantage to those who save, penalizes big spenders
Shifts tax burden from high-income people
What is the Fair Tax?
A regressive tax system would be created.
The U.S. government could lose revenue from those with high incomes.
Government employees and tax professionals would lose work.
As we see in the Fair Tax, the government loses the ability to encourage certain actions of citizens through tax incentives.
The Fair Tax is a form of a national sales tax that replaces all federal income taxes.
The Fair Tax is a consumption tax that taxes only new goods or services.
While most sales taxes include deductions and exemptions, the Fair Tax does not.
It includes a prebate system to cover basic needs.
You are only taxed on what you spend.
Necessities are not taxed due to the prebate system.
The Fair Tax is revenue neutral.
Investors and businesses would no long pay taxes on capital and investments.
Fewer tax professionals would be hired.
The Fair Tax would encourage self-control in spending.
Fair Tax Rate as a Percent of Spending: 2013. 2013. Chart. FairTax.orgWeb. 20 Jan 2014.
Holan, Angie. "Adding up the Fair Tax." PolitiFact. Tampa Bay Times, 23 Jan 2008. Web. 20 Jan 2014.
Huckabee, Mike. "Fair Tax Challenge." Fox News. FOX News Network, 25 Oct 2010. Web. 20 Jan 2014.
"Just Say No To A Vat." It Don't Make Sense: Wake Up America!. Blogspot, 30 Sep 2011. Web. 19 Feb 2014.
Krugman, Paul, and Robin Wells. Microeconomics. 3rd ed. New York: Worth Publishers, 2013. 200. Print.
Matson, R.J. Flat Tax. 2011. Graphic. The St. Louis Post Dispatch, St. Louis. Web. 20 Jan 2014.
Mitchell, Daniel. "Eliminate Tax Brackets and Complicated Forms With a Flat Tax." U.S. News & World Report. U.S. News & World Report L.P., 12 Apr 2010. Web. 20 Jan 2014.
Pethokoukis, James. "Fix, Don't Flatten, the Tax Code." National Review Online. National Review Online, 28 May 2013. Web. 20 Jan 2014.
Silver, David. "Value Added Tax: Kick It Further Down The Road." Wall Street Strategies. N.p., 31 Aug 2011. Web. 19 Feb 2014.
Slemrod, Joel, perf. What is a value-added tax? - Ask the tax professor. The Ross School of Business - University of Michigan, 2012. Film. 19 Feb 2014.
Taxes. N.d. Cartoon. n.p. Web. 16 Feb 2014. <http://www.tax-saving-professionals.com/tax-cartoons/>.
United States. Internal Revenue Service. Understanding Taxes. Web. <http://apps.irs.gov/app/understandingTaxes/teacher/whys_thm03_les03.jsp
The US government's tax system is somewhat progressive, but it does have both progressive and regressive taxes.
Progressive tax - A tax that takes a larger percentage of income from high-income groups than from low-income groups.
Regressive tax - A tax that takes a larger percentage of income from low-income groups than from high-income groups.
Why different kinds of taxes?
Different levels of government worry about tax competition, which leads to wealthy people leaving, resulting in more regressive taxes. At a federal level this is less of a concern, resulting in more progressive taxes.
What is a Flat Tax?