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This research paper discusses the theme of tax reform in the United states. Nowadays this issue is an actual one. Many Americans are interested greatly in this issue and even express their personal opinions on this topic. The research paper discusses different problems with the current tax system and represents some ideas concerning some changes in the US tax reform.
Key words: tax, tax system, tax reform.
It is impossible to carry out new transformations for the purpose of steady development of the economy without formation an effective tax system. Tax reform is a process which changes tax policies of the government. It is known that there are different goals of this process such as reduction of the tax level of all the people, changing tax system for more progressive effect, simplification of tax system. A good tax reform can improve the life of many people.
1.1. Significance of the study
This research paper discusses one of the most important issues in the development of the economical system – tax reform. This issue is an actual one not only for the United States but for any country of the world because financial sector plays a key role in the present day development of the economy. Tax reform is a main tool of the governmental control. In the context of tightening business competition there is a necessity to take appropriate measures in getting over the consequences of the financial and economic crises 2008-2009. So, tax reforms have such functions which will help to stimulate economical growth and innovative activity, and to increase social protection.
1.2. Definition of terms
In order to conduct a good research on tax reforms it is necessary to represent some economical terms which will be used in the process of research. They are the following ones:
Taxes are payments which are made by the natural and legal persons (enterprises, organizations and citizens) for the government revenues in mandatory manner. It is a duty of everybody to pay taxes. Taxes are necessary because by means of taxes the government has an opportunity to control some economical processes in the country.
They help to develop and reduce some kinds of business, to guide the development of these or those brunches of industry, to influence the economic activity of some enterprises and organizations, to balance consumers supply and demand, to regulate the amount of money in circulation.
Tax system is the total of taxes, fees and other obligatory payments which are taken according to the legislative acts. The main characteristic features of any tax system include the following ones:
the total of taxes fixed by the government;
the complex of principles, forms and methods of their putting into operation;
the system of tax authorities, forms and methods of tax control;
rights and duties of the participants of tax relations;
order and conditions of the tax process. (Roach, 2006)
2. Discussion themes
This research paper touches upon the themes which are closely connected with the topic of the paper. It discusses issues and problems with current system in the United States. Moreover it gives some new ideas for tax reform.
2.1.Some Facts from the history of Tax Reforms in the USA
According to the historical data, there were a lot of various movements in the USA which had the main goal to reform the collection and the management of taxes in the country. Thus, the Whiskey Rebellion which took place in 1799, is considered to be the first effort to carry out tax reform in the USA.
From the historical sources we learn that George Washington who was the US President at that time sent about 13000 troops to the western part of the state Pennsylvania in order to put down the rebellions. Another significant movement against tax reforms took place at the end of the 19th century.
Henry George, who was an outstanding American economist of that time, was at the head of that movement. The main goal of that movement was to abolish all forms of taxation other than the Single tax on land values. He offered this single tax in his book Progress and Poverty in 1879.
This plan was not put into practice although it got support. This movement on tax policy was spread not only in the United States but also on Australia and New Zealand. However, the organization which is called The Henry George Foundation of America continue to promote this form of taxation reform. (Barker, 1985)
It is known that several organizations in the United states are engaged in tax reform in the country among which are Americans for Tax Reform, Americans for Fair Taxation, Americans for Responsible Taxes. These and other organizations have already promoted some ideas concerning tax simplification in the United States which include Flat tax plans, Fair tax and bipartisan tax reform proposals. (Tuerck et al., 2007)
2.2 The Structure of Taxation in the United States and its meaning
It is known that the system of taxation in the United states is a progressive one. It means that the percentage of income which is paid by the household will increase with the increasing income. In other words those people who earn more will pay a higher rate of taxes. Here is an example:
A person earns $100,000 a year, he will pay 25% of it – $25,000.
A person earns $30,000 a year, he will pay only 10%tax rate – $3,000.
However, there may be also regressive and proportional tax systems.
Some Reasons for using the Progressive tax system in the USA:
Progressive tax system stands for the concept that those people who earn more should pay more tax rate because they have more opportunities to pay and they will not forego the most necessary things such as health care or education.
Reduction of inequalities in the society. (Roach, 2006)
2.3. Different types of taxes in the USA
There are several different types of taxes in the United States. All these taxes are collected by the Internal Revenue services. They are the following ones:
Corporate taxes. These taxes are based on the company’s income per a financial year.
Investment taxes. These taxes are usually paid when a person receives some dividends and capital gains. (Smith, 2010)
There are also some other types of taxes which are paid by the individuals: income tax, sales tax, property tax, social security tax, medicare tax and others. (McIntosh 2010)
Taxes on business include federal which include four groups: income, self employment, payroll and excise, state which include common state business taxes (sales tax, employment tax and business income tax) and local which are collected by cities and counties in order to supplement services for this or that area. (La Rose, 2010)
2.4. Problems with the Current Tax System in the United States
The US Tax System is considered to be a complex one. It has its peculiarities which differ it from the tax systems of other countries of the world. However, the US Tax system has both advantages and disadvantages. The last ones require certain changes. Here is the list of problems with the current Tax System in the United States:
A fabulously complex tax system with numerous layers of taxation on the same money: taxes on income and salaries, ans savings. According to the statistical data, four of five middle-class Americans pay more in payroll taxes than in income taxes. (Walby, 2008)
High rate of unemployment (about 10,3 million persons).
Little of the mortgage interest deduction refer to those people who are at low and middle level of income.(Walby, 2008)
About 18% of taxpayers have got out of the system. The income taxes fail to take the cash payments and other unjustified transactions concerning illegal immigrants.
The income taxes assist imports over the US production by excluding imports from Us tax and it penalizes the US exports giving an opportunity to some foreign countries to impose taxes when our goods are delivered to their shops. This fact damages the US exports and even costs the Americans their jobs. (17% price advantage over the US goods.)(Tuerck et al., 2007)
The income tax system puts the highest corporate tax rate enforcing companies to be located in other countries.
Great problems with education, many students do not know about the financial aid which can be given to them. College education became too expensive. College graduates have debts of more than $19.000 when they leave college.
A great deal of manufacturing jobs were lost due to breaking out the US manufacturing trade deficit. (Arduin, Laffer&Moore Econometrics, 2006)
Interviewer: Hello! What is your attitude to the present day tax system? Are you satisfied with it?
Mr. Brown, an engineer/49 years old: Good day! I think I pay too much in taxes.
Mr. Wilson, a doctor/29: The Tax Code is too confusing!
Ms. Whinthrop, a manager/41: I pay through the nose on income and payroll taxes and they say we still don’t have balanced budgets!
Ms. Hartcoph, a student/20: I think rich people do not pay their “fair share”.
Mr. Carack, a worker/27: Oh, little guys like me cannot take advantage of the tax code like those people who earn much and corporations do.
Ms. Curts, a pensioner/71: You know, fifteen percent of Americans do not pay any income tax any more!
Mr. Bronks, a builder/38: Our current tax system taxes the poor but not the rich. The programs are all for the benefit of the rich and on the backs of the poor.
Analyzing the above mentioned interview, we can say that many people are not satisfied with the current tax system. They consider it should be changed. Most Americans choose fair Tax plan. (Kotlikoff, et al., 2006)
Some words about the main idea of this plan. “The Fair Tax is a proposal to replace” the following taxes as the federal corporate income tax, the federal payroll tax, the federal estate tax, the federal gift tax, the federal generation-skipping tax “with a federal retail sales tax, assessed at a single rate”. The Fair Tax guarantees a rebate to each household which will be “based on its demographic composition”. The main idea is that the rebate ensures that households who live at or below the poverty line in the United States will pay no taxes on net income. (Kotlikoff et al., 2006)
2.6. Some New Ideas for Tax Reform in the United States
Of course, it is very difficult to judge but I think that there should be some changes in the tax system of the Unites States. Here are some ideas for tax reform:
Those countries which supply the United States with their products (for example, China) should pay more for import of their products.
It is necessary to replace the existing federal Tax Code of the United States into a more simplified version.
It will be good to impose no taxes on export and corporate profit in order to save jobs and to make the US companies more competitive.
There should be no taxes on education tuition fees.
Non-filers should pay taxes when they buy goods or use services.
Those who get low incomes should not pay any taxes.
In conclusion, it is necessary to say that taxes play an important role both in the economy of the country and in the life of citizens. Tax money is used by the government to run the most significant activities. This money may also be invested in some projects which will be beneficial for all the citizens of the country. It is very important to have such a tax system in the country which will be appropriate for citizens of all the levels of income and will allow all of them to live a full life. That is why we need tax reforms.
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