The Issue of Tax Reform Essay

This idea of reducing taxes to increase investment within the economy sounds like a good idea but hasn’t lived up to its expectations historically. The idea of supply side economics wasn’t a new idea for the American tax code. During the early 1920s, income tax rates were cut multiple times which averaged to a total of most rates being cut by a little less than half. The Mellon Tax Cuts named after Treasury Secretary Andrew Mellon under Presidents Warren Harding and Calvin Coolidge. He believed that changes in income tax rates causes individuals to change their behavior and practices. As taxes rise, tax payers attempt to reduce taxable income by either working less, retiring earlier, reducing business expansions, restructure companies or spending more money on accountants to find tax loopholes. If executed properly tax cuts can actually benefit economic growth, data from the Internal Revenue Service(IRS) showed that the across-the-board tax cuts in the early 1920s resulted in greater tax payments and larger tax share paid by those in the higher incomes. As the marginal tax rate on the highest income earners were cut from 60 percent or more to just 25 percent, the amount that this tax group payed soared from around 300 million to 700 million per year. (See Figure 2) This sudden massive increase in revenue allowed the U.S. economy to rapidly expand during the mid and late 20s. Between 1920 to 1929, real gross national product grew at an annual average rate of 4.7 percent and

One popular method of tax reform that some of the experts in this field think is worth considering is implementing a flat tax also known as a consumption tax. J. D. Foster says that “any tax with a single tax rate could be considered a flat tax.” An article from the website Tax Policy Center defines consumption as being “income less savings” (Gale). The major difference between an income tax and a consumption tax is the way savings are taxed. With an income tax all income is taxed when it is earned and again when interest is earned on any savings. Critics of an income tax say that this is double taxation and

First off, there are many people who do not even know what a flat tax is. By definition, a flat tax is described as, “a very precisely defined and coherent tax structure: a combination of a cash-flow tax on business income and a tax on workers’ income, both levied at the same, single rate” (Keen 4). Now, this just means that every person and every business, no matter the income, would be taxed at the same rate. Realistically speaking, when people talk about taxes, it is a matter of who wins and who loses. If we decided to adopt a flat tax system, people of lower income families would be suffering, “Under the flat tax, low-income households would lose because they now pay no income tax and are eligible for a refundable EITC of up to $3,370” (Gale 155). With this being said, the families of higher income would actually be thriving of a system

The arguments regarding federal progressive income tax has been represented to us through the United States Supreme Court, on the floors of congress, and in media. The revenue from taxes reached the objective of financing wars from the Civil War through World War II. At the same time deteriorating the economy with fewer dollars that could be used on imports, exports, and services (Henchman). Today, the United States deficit is $18,800,241,350,538.12 this is a grand total of 58,405.32 owed by every man, woman, and child (Brown). The legal illusion is presenting the question, is income tax legal? There are Americans today who believe income tax is not legal and stand by their beliefs in a movement that has cost many individuals considerably. I am interviewing such a person, his name is Bobby Ray and the history he presented to me was interesting, and has left me with more questions than answers.

People do not enjoy talking about taxes because they are too political, confusing, and depressing. It is no secret that the American tax code is a mess and something many economists describe as too broken to fix. Despite this, politicians have never stopped from trying to “fix” the code, yet they have had very little success. The U.S. Government’s tax code currently comprises “more than 67,000 pages of complexities” (Boortz, Linder, & Woodall 14). The Americans for Fair Taxation (AFFT) was founded in 1995 with one goal: create the simplest and best tax reform plan that would work in the modern market and economy. The AFFT’s best solution was a bill which they promptly called the FairTax.

The federal tax code has a level of complexity so great, that reforming it should be the one thing Republicans and Democrats can agree on. Instead, proposal after proposal calling for reform die in Congress. And there have been a lot of proposals. Arlen Specter (D-PA) put some form of a flat tax/tax reform proposal into Congress’s hands every year from 1995-2010. This is because, for the most part, the fight for reform always comes down to a two sided debate. One side wants to keep the current complex structure and the other sees no other alternative than blowing this current structure up and moving to a flat rate system. All of this brings me to the arguments for/against the flat rate tax system.

However, raising taxes on the rich and corporations is not as helpful to our economy as most people think. Although raising taxes on the top percent of people and companies appears to create more income for the government, the result will make it harder for middle class and lower class citizens to grow. Some argue that by combining several key changes, including the simplification of the tax code to avoid loopholes and the decrease of taxes on the rich and corporations, there will be an improvement in the national economy. Although this may seem a bit counterintuitive, it makes more sense when looked at closely. By lower taxes and remove all loopholes, smaller businesses are given further opportunities to grow instead of facing financial roadblocks and government

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 current tax legislation that needs reform are the tax rates for families, individuals, businesses, and investors. America needs tax reform because the current tax code prevents economic freedom and reduces the strength of the economy. The current tax base causes double taxation of investment and savings, which discourages the amount of investment in the society. Less investment reduces productivity growth, employment, and real wages. We need a constitutional tax reform that is followed by everyone to relieve the harm of the current tax system and to strengthen our economy. The reform is necessary because the strengthened economic growth would essentially improve the incomes of Americans and enhance economic opportunities.

The Armey-Shelby flat tax proposal will scraps the entire income tax code and replaces it with a flat-rate income tax that treats all Americans the same. This plan would simplify the tax code, promote economic opportunity, and restore fairness and integrity to the tax system. The flat rate would be phased-in over a three-year period, with a 19 percent rate for the first two years and a 17 percent rate for subsequent years.

"A revolutionary change in our tax system is fundamental to re-energizing the American economy and restoring the American dream" (Moore 1). Currently, there are two major plans being considered to try and fix the tax system in the United States. These two plans are the Flat Tax and the National Retail Sales Tax. "Both the Flat Tax and a National Sales Tax would replace today's discriminatory tax structure with a single low rate. Either plan would promote the kind of capital formation that America needs to boost workers' incomes and raise long-term economic growth" (Mitchell 1). This means that the flat tax would take away the savings from the government and pass them on to the citizens and businesses. By doing this, there would be a rise in long-term economic growth.

Throughout history, taxation on United States citizens has proven to be a necessary component of a growing economy as means of generating revenue for the federal budget. The federal budget funds the many government programs implemented to keep the disabled, elderly, and unemployed from falling bellow the poverty level. Unfortunately, this fund is not always available when catastrophic evens, such as an economic recession, deplete the revenue coming in and create a budget deficit. In order to regenerate money coming in and replace the deficit, the government calls on money gained from taxes. What happens when tax money is already appropriated to other programs? A tax reform. A tax increase has many times been the

The supporters of the Flat Tax system are quick to point out this system's attributes but not as quickly as the criticisms by those who oppose it. The filing of taxes each year would be much easier because there would be one set rate to pay. This type of system also discourages, and makes it almost impossible, to find and use any existing schemes that are present to avoid paying taxes. However, because there is a set rate at which everyone needs to pay, this system is quite unfair. Those who earn and have a lot of money should not pay the same amount as someone who has only a fraction of their wealth. The wealthier you are, the more you should pay because you can afford it. If there is a set tax rate it would be too high to some people and pocket change to others. A system like this also takes away many, if not all tax deductions. An event like this would cause irreparable injury to the middle class, who often times rely heavily on money they will get back from tax deductions.

Policy makers have introduced a solution to the staggering proportion of taxes that Americans spend. The flat tax, based on an idea developed by Professors Robert Hall and Alvin Rabushka of Stanford University to create a fair, simple, and pro-growth tax system (Mitchell 1, 11). There are four basic criteria that make up a flat tax. First is a single low rate on taxable income, the baseline for taxable income would be raised to a certain amount dictated by a personal exemption. Second is simplicity, all Americans would fill out the same postcard-sized form to pay their taxes. Third is the reduction or elimination of deductions, credits, and exemptions, depending

The Federal Government relies predominately on the individual income tax, and federal income tax makes up more than 50 percent of the federal government’s revenue. Income taxes are paid by all those who earn income (Mikesell, 2011). It is essentially a bill from the federal and state governments for individual earnings through salaries and investment profits. Income tax is considered a progressive tax because the individual's financial obligation rises with the level of reportable income (Mikesell, 2011). Although income tax is the one of the most effective ways of raising revenue for the government, it is also one of the most controversial.