Impacts of High Taxation Rates on the Economy

2121 words (8 pages) Essay in Economics

23/09/19 Economics Reference this

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High Taxation rates and its effects on a economy

                                                 High Taxation Rates

 Taxes have been with us since for centuries and have been slowly increasing each year.High taxation rates can prove to be deadly for an economy of any country,they can hinder economic growth .Taxes are directly linked to an economy’s health,While taxes are necessary for a government but over taxation can do more bad than good.Lighter punishments and more time to pay taxes might be an effective way to make the economy healthy again.

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Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity – whether local, regional or national – in order to finance government activities( Julia,2019 ).There are several types of taxes which include Income tax,Payroll tax,Property tax,Consumption tax,Tariff (taxes on international trade, and Capitation, a fixed tax charged per person,Fees and tolls. ( Julia,2019 ).US has a progressive tax meaning it increases as an individual makes more money.Taxes are the most important part of any existing government but overtaxing individuals and businesses and can be harmful and can leave negative long-lasting effects on a economy.Taxes are the way a government acquire their annual spending and run the country but Overtaxing residents of a country can cripple the country’s economy and extract all the money from the consumers.The US is one of the only countries in the world to tax individuals based on citizenship.You may have US tax obligations even if you haven’t ever lived in US or left several years ago and all your income is from foreign sources.You may have tax obligations even if you aren’t earning any money but are married to someone who did have income (“ US Taxes Abroad” ).Taxes have been and will always be a part of our government like the saying goes “nothing can be said to be certain, except death and taxes”( Fred,2011 ),but the correct and efficient usage of the power to tax will make an economy successful and flourish.

People argue that Taxes are a civic duty and you are required to pay it by law.Without taxes a government would be non-functional. Tax money is used for the betterment of the country and its residents.Your taxes are used to pay for services like social security trust fund and medicaid which helps the people who are less fortunate.Without taxes the annual revenue would not be able to cope up with the annual spending and the national debt which is currently $21.7 trillion would keep increasing.Governments would have to take loans from other countries or corporations to function properly and efficiently.Much of the funds collected from the taxes are used for the police force and fire protection services, constructing schools, maintaining local infrastructure, and protecting residents against local health emergencies and neighborhood crime.Without taxes our national and local security would be at stake and the federal government would not be able to carry out their day to day functions properly.All of these reasons are equally important for a stable economy.

Taxes are the most important part of any country but overtaxing and using the power to tax in a negative way can really affect the economy.HIgh taxation rates can causes businesses to move abroad, an article by washington post states “American firms have moved overseas at a time when a growing number of countries have reduced tax rates. These “inversions” have been taking place as Congress remains at odds over lowering the corporate tax rate of 35 percent, one of the highest rates in the world” ( Gabriel,2014  ).Businesses moving abroad is devastating for a country and its economy.When a government over taxes businesses,the business is unable to produce more goods and run on a profit so they continue their production overseas where the tax burden is low and the business is successful for example Boeing outsourced 2,681 jobs because they really needed a tax break since the new president was elected into the white house

( Eric,2018 ).High taxation rates causes businesses to pay their employees low wages to make up for the cost of taxes,while some business lay off their workers or shut down which causes the unemployment rate to go up.High taxation rates has the ability to cause price surges which decreases the buying power of the consumers as a result it causes businesses to go bankrupt as their products are not selling and producing revenue.High taxation rates increase the power of government as they get more revenue to support more programs,more government means more government regulation and guidelines which causes further damage to businesses and drives the country near communism where government has the majority of power. 9 states with the highest income tax rates saw their populations decrease in the last decade which shows that people/businesses move out when tax burden is really high.Over taxation increases the burden on the government as well.In 2009 a spokesperson for the US internal revenue service estimated that 8.2 million americans owed over 83$ billion in back taxes,penalties and interest.Over 18 million americans owed taxes in september 2014.An estimated 10 million face tax penalties each year. Unable to pay taxes may result in having your passport revoked,denied housing assistance or even deportation.IRS annual budget in 2017 was $ 11.5 billion and with the number or people unable to pay their taxes increasing each year the budget soon won’t be enough for IRS to carry out its operations.High taxes causes people to be unable to live on their incomes causing the poverty rate to go up,this results in additional burden on government social welfare programs like TANF (Temporary Assistance for Needy Families), Medicaid and The Supplemental Nutrition Assistance Program) is more commonly called food stamps.Poor people unable to find jobs and feed their families turn to crime,which causes the crime rate to go up.Estate tax is levied on what you pass on after your death. These items can include cash, retirement accounts, property and more.The estate tax is really harmful for small businesses and farms because it forces the heirs to deplete working capital and even sell farm land to pay it.Estate tax will slow business activity because a descendents heirs will have less to invest,many individuals save less because they don’t want their estates to be subject to the tax.

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Decreasing taxes and tax cuts could help solve the problems raised from over taxation.Reducing tax rates would spur economic growth,data collected by the Congressional Research Service  for the last 25 years shows that, there is a strong correlation between low tax rates and economic growth. The idea is that lower tax rates will give people more after-tax income that could be used to buy more goods and services,hene promin economic

growth. After the 2018 Trump tax cuts the Economists hiked their projections for growth this year once the tax cuts passed. The CBO changed its 2018 forecast from 2% before the tax cuts passed to 3.3% after they took effect. In that same report, the CBO admitted that this added growth would offset a significant chunk of the tax cuts. Decreasing the taxes would force the government to cut down their spending which is good for the country and its residents.Lenient punishment and more time would give people/Businesses the opportunity to pay their taxes over a period of time which could help their financial situation at the time for example a business wouldn’t have to close down or lay off its workers just because its unable to pay the taxes before its due date.Lenier punishment would also decrease some of the burden on the government as it wouldn’t have to spend as much money on punishment for tax evaders.Giving a second chance would also prevent people from turning to crime and getting their incomes from unlawful means.

In conclusion Over taxing is harmful for any government and could result in irreversible changes to the economy. Efficient and fair tax rates are vital for a country to be successful. Lenient punishments and more time to pay taxes can be an easy and alternative solution for over taxation.

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